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T li E 





■VS' 1 T 11 ITS 








J 7 ^ ^ ^ 


Entered, according to tlic Act of Congress, in the year 1S59, by 


in the Clerk's Office of tlic District Court of the United States for the Eastern District 

of Pennsylvania. 



f^ PAOE 

\*i Introduction 1 


2a Exchange of commodities an incident of civilized life — Agencies of 

this exchange not to be confounded with the exchange itself — The 

fitness of these agencies best determined by treating them as agencies 

more or less necessary to the main purpose, but not indispensable — 

Money, and money of account 25 





^ 1. The employment of gold and silver involves terms in which to 
express their value — Mint price and market price — Money of 
account a necessity 31 

J g 2. Idea of value carried in the mind as the idea of weights, measures 

T of length and capacity — The use of money of account is much 

,M greater than of money — Often confused in language — Kelly's Cani- 

A bist — Varieties of moneys of account — Decimal system 35 

X ^ 3. British money of account — The pound sterling — Guinea — Sir 
Isaac Newton — Lord Liverpool and the system of 181G — Why frac- 
tions in weight of coins — Coins adjusted to money of account — "What 
is a pound?" — Fixed price of precious metals — Influx of gold — 
Depreciation only postponed — Remedy — Suspension of payments 

in Groat Britain in 1797 46 

u. § 4. Colonial currency of Canada, and of the thirteen colonies now 

part of the United States 55 

§ 5, Moneys of account in Italy, Germany, &c. — Evils of varied coin- 
age — Coinage implies a previous price — Coins not a measure — 
Prices in money of account understood instantaneously — Ricardo — 
I Sir James Stewart — Bishop Berkeley — Montesquieu — Money of 
account, its limits of usefulness — Edinburgh Review 59 



Koies to Chapter II. 

I. Marquis Gamier and his critic, Letronne --^ 

II. Kxtract from a paper by the author, in the Bankers' Magazine — 
Prices — Uritish money of account — Locke and Lowndes, and the 
reeoina-e cntroversy of 1095 — Continental currency— Introduction 

of dollar unit — Hubert Morris — Alexander Hamilton - 7 

III. Kxtnict I'roni a paper by the author, in Hunt's Merchants' Maga- 
zine — Nature and functions of money of account — Disturbance of 
prices of precious metals — Legal tender — Depreciation of paper 
currency — Coinage system of Great Britain 




I 1. Gold and silver a common equivalent or medium in the inter- 
change of commodities — Circulation by weight — Not constituted 
money by coinage, wliich only facilitates circulation — Diversity of 
mints, and confusion of coins — Wear and waste — Clipping, filing, 
sweating and counterfeiting 101 

g 2. Circulation of the precious metals as money — Commerce de- 
pends on coins for so much use as is made of them, and no more — 
They perform no functions beyond the use we see made of them .... 110 

§ 3. Quantity of money required for the business of a country 118 



I L The precious metals neither a measure nor a standard of value — 
The legal standard of payment — Standard of coinage — Legal tender 
— Objections to legal price of gold and silver — Earl of Liverpool — 
Price of gold fixed by authority in Great Britain — Seignorage on 
coins for retail business — Waste and folly of incessant recoinage — 
Legal tender at market price safe in large transactions 123 

? 2. Coinage — French coinage — Debasement, frauds, disturbed 
money of account — System of the United States — Act of Congress, 
1792, adopting the dollar unit — Price of gold fixed — Results — Act 
of June, 1834, reducing weight of gold coins — Result — Act of 
February, 1853 — Silver coinage — Ingots of gold — Export of silver. 137 


Notes to Chapter IV. 

I. Earl of Liverpool — British system of coinage adopted in 181G .... 14G 

II. System of coinage in the United States — Double standard — Pro- 
posed adoption of single standard of gold, as a remedy for scarcity of 
silver — Reduction in the value of our silver coins 149 

C II A P T E R V. 


The actual use of coins measures their importance and power — 
Modes of payment more efficient — Each to be judged upon its merits 
— Usages of trade assign to coins their office — Not a model cur- 
rency — Bear no higher interest than a credit in bank — The British 
act of 1844, requiring the issues of banks to fluctuate as gold — 
Sir Robert Peel — Lord Overstone — Col. Torrens — Question one of 
commerce and payment — Return to hard currency impossible 155 



I 1. Bank of Amsterdam 174 

1 2. Bank of Hamburg 181 

Note to Cliapter VI. 
Bank of Amsterdam 184 

C 11 A P T E R V 1 1 . 


§ 1. Distinction between credit and the credit system — The latter 
defined — Business of payments separated from the business of dis- 
tributing commodities — Trade made virtually a barter — Division 
of labor leads to this — Relations of debtor and creditor mutual, and 
mainly among the same classes — The fund which pays debts derived 
from credits the counterpart of debts — Credits as a currency — 
Convertibility — Blending credits and money — Diversion of credits 
from their proper functions 188 

2 2. Books of account 200 

C II A P T E R V I II . 


^ 1. Promissory notes and bills of exchange, their efficiency as means 
of payment — As evidences of debt, they aid in separating the busi- 
ness of trade from that of payments — Dealers in exchange — Bankers 
— Concentration of debts and credits — Balances — Use of notes and 
bills in Lancashire, England, and in the United States — Limits of 
use in payments — Mutual debts and set-oli' 205 


g 2. Foreign exchange a means of payment — Complicated with coin- 
age and its evils, and with increased transactions of domestic trade — 
Processes of foreign payments readily perceived — Imports — Ex- 
ports — Dealers in exchange and bankers — Payments, where to be 
made — Rate of exchange — Circuitous exchange — Fluctuations in 
exchange — Economy of payment increases trade 212 

I 3. -Fallacy of making foreign exchange a criterion of domestic cur- 
rency — Foreign exchange simply the process of paying and receiving 
debts of foreign trade — The medium employed has its prope^ 
agency — So with payments of domestic trade — Neither should 
guide nor control the other — Payments as distinct as the trade to 
which they belong — Long-continued adverse foreign exchange of 
American colonies, and its results 221 

Note io Chapter VIII. 

Foreign exchange, its relations with banks — Export of specie — Con- 
traction of our currency — Resident agents of foreign merchants and 
manufacturers, their influence on foi'eign exchange and domestic 
currency 228 



Facility and power of bank-notes — Disadvantages — Issued in exchange 
for paper of individuals — Convertibility not the basis of bank-notes, 
but a security against abuses — Inadequacy — Banks, and the re- 
straints imposed upon them — Bank-notes a medium by which com- 
modities pay for commodities — Demand for bank-notes by the debtors 
of banks, the cause and result — Bank-notes and progress of con- 
sumption — Circulation and efficiency — Exchange between banks — 
Proportion of bank-notes decreasing 231 



A greater facility than bank-notes needful — Banks the reservoir of 
funds not in actual use — The fund employed in large payments — 
Credits the fund which pays debts — Depositors employ their credits 
to pay their debts — The credits will pay the debts — Deposits vir- 
tually a system of accounts kept by the banks for their customers — 
Indebtedness cliiofly mutual, and settled by set-off — Demand for 
deposits — Circulation — Absorbed by the banks in payments of dis- 
counted paper — The banks pay for paper with credits, and receive 
them in payment 241 




g 1. The Clearing-house of London — Private bankers — Concentra- 
tion of payments — Mutual adjustment — Mutuality of debts — Pro- 
cesses at the Clearing-house — Amounts cleared — Bullion Report 
of 1810 — Sir Henry Thornton — Relations of clearing to commerce 

— Banks and their customers — Payments of foreign trade — Do- 
mestic payments of special districts — The credit system — New 
channels for the precious metals 252 

§2. Bank adjustment in the United States — Clearing between the 
banks — Mutual accounts and correspondence — Domestic exchange 

— Balances of home trade — Mutual debts the basis of this adjust- 
ment — The system of clearing in New England, at the Suffolk Bank 

of Boston 265 

§ 3. Clearing between the banks of Scotland — Balances payable in 
Exchequer bills, notes of the Bank of England, or gold — Their sys- 
tem of deposit, and its influence upon business — Stimulus to punc- 
tuality and industry — Circulation of bank-notes in Scotland — One 
pound notes 271 



Commercial Fairs of the 13th, 14th and 15th centuries — Continued on 
the confines of Asia and Europe — Kiachta — Nijni Novgorod — Kief — 
Concentration of payments — Fairs of Lyons — Payments of Lyons 

— The opening — Mode of conducting — Viramen de partie — Set- 
ting-off debts — Payment of balances — Results — Rationale — Illus- 
trations — Fairs of Novi and others in Italy chiefly for payments. . . 275 



Bank of Venice — Originated 1171, in a loan to the Republic — Office 
of transfer — Interest paid — Transfers in payment of commodities 
and debts — Sums deposited taken by the Republic — In 1423, bills 
of exchange and payments in gross made only in bank — Premium 
on bank funds — Circulation — Banco del Giro — Evils of coinage, 
and severity of laws — Department for deposits repayable on de- 
mand and transferable — Its success — Deposits taken by the Govern- 
ment, but repaid — Capital of the Bank — London Encyclopaidia 
corrected — Causes of agio — Precautions againut fraud — Concen- 
tration of payments at Venice 288 




'House of St. George, or Bank of Genoa — Contrast in financial systems 
of Venice and Genoa — Complications of Genoese finance — Security 
exacted by public creditors — The system of 1302, its officers — Pri- 
vate bankers — Bank in 1407 — Large array of officers — Deferred 
dividends, or Moneta di Pagiie — Famine of 1539 — Deposit system 
— Bank bills — Price of shares — Money and moneys of account — 
Advantages of Bank to trade — Processes of the Bank — M. Gautier 
and M. Coquelin on the moneys of account of the Bank — Carlo 
Cuneo on tlie moneys of Genoa 311 

Nolc to CJiapter XIV. 
Italian writers — Dictionnaire du Commerce, Paris, 1839, corrected. .. 337 



I 1. Opinions and projects on credit and currency previous to the 
Bank of England — Samuel Lambe's plan, 1665 — Evils of the coin- 
age — Dr. Hugh Chamberlain's plan, 1G65 — Large model of a Bank, 
1678 — Bank of Credit, 1682 — Bank of Credit, 1683 — R. Murray's 
plan, 1695 — J. Asgill's plan, 1696 — Office of credit, 1698 339 

^ 2. Bank of England chartered in 169-4 — William Patterson the pro- 
jector — Founded on a loan of £1,200,000 at eight per cent. — Oppo- 
sition and objections — Commenced 1695 — Bank-notes — Advances 
to government — Recoiuago — Rate of discount — Business of the 
Bank — Deposits — Bank bills — Ci-edit — Goldsmiths robbed by 
Charles II. — Safety of deposits — Use of deposits — Bank bills 
payable on demand — Bills of exchange and promissory notes on 
time — Convertibility — Bank-notes not substitutes for specie, but 
for commercial paper: should fluctuate with this paper, and not with 
coin — Concentration of payments in London 352 

I 3. Bank of England's credits in account — Deposit of bank-notes — 
Conversion of individual paper into bank-notes — Bank issues 
credits, and receives credits in payment — Credits wrongly blended 
with deposits — Open credits payable on demand hazardous — Ob- 
jections — Credits payable on demand abolishes time on bills of 
exchange and promissory notes — Mingling credit and money — 
Consequences — Real nature of credits in account — Expand with 
trade, diminish with it — Not money — Payment by bank credits 
not dependent on money — Not a question of convertibility 379 


2 4. Bank of England suspension from 1797 to 1822 — Order of Privy 
Council — Opposition — Terms of suspension — Extensions — Pro- 
gress of the country during suspension — Dissatisfaction — Lord 
King — Convertibility — Processes of payment the same during sus- 
pension as before — Bank issues and the commodities of trade — The 
credit system — Controversy as to depreciation during suspension — 
Bullion lleport, 1810 — BuUionists and anti-Bullionists — Tooke's 
History of Prices — Prices of gold and silver, and amount of circula- 
tion, from 1797 to 1821 394 



The Bank of Scotland chartered, 1G95 — John Holland's account — 
Contrast -with Bank of England — Founders of the Scottish Bank 
avoid relations with Government — Object, economy of money — 
Bank-notes — Trouble with Roj'al Bank — Suspension — Modes of 
relief — Identified with masses, by receiving small deposits on in- 
terest — Forty banks, 340 branches — Harmony — English preju- 
dices, Scotch scorn — Cash credits a principal feature — Contrasts 
with English system — Scotch system equally effective, and safer — 
Bank failures few, and not disastrous — Suspension of 1797 in Eng- 
land without effect in Scotland — Reports to the House of Lords and 
to the Commons, 182G — System not cordially approved in England 

— One-pound notes — Discussions — Sir Walter Scott's level of gold 

— Modes of regai'ding the subject in England and Scotland — Scotch 
Banks the pride of the people — W. Chambers' distrust, with expla- 
nations 407 

Note to Chapter XVI. 

Regulations for exchange of Scotch Bankers' notes 442 



g 1, Banks are agencies of payment — Discussions and different views 
— Banks are dealers in credits — General waiver of legal currency — 
Paying fund from the proceeds of discounted notes — Banks absorb 
their own issues — Process exemplified — Demand for bank currency 
makes it good — Commodities of trade hold by debtors to banks — ■ 
Sold to pay the banks — Bank currency the medium — Commodities 
the basis ; individual and bank paper mere securities and means of 
adjustment — Circulation and deposits of New York banks in 1857 — 
Daily payments — Banks of the United States pay and are paid 
in their own currency, and thus furnish a safe medium for cii'cula- 
tion — Mutual debts 444 


§ 2. Bank-notes not money, but promissory notes of banks — Perform 
the functions of money — Deposits are so employed, but are not 
money — Both substituted by banks for notes of individuals — Banks 
make securities of paper, not money — Convertibility of bank-notes 
does not make them money; it is a mere check on the banks — Gold 
and silver not the basis of bank issues ; these are based on paper dis- 
counted by the banks, and this paper is based on the commodities 
for which it is s'^'cn — Convertibility an inadequate check — Em- 
ployed with fatal effect against those who rely upon it — It abolishes 
time on commercial paper , 459 

§ 3. Bank issues and agency the chief actual medium of payment — 
New York banks in 1857 — Contraction of currency — Fund used to 
pay debts — Process of paying continuous — City banks and country 
banks — The former chief agents in payments — Demand for specie 
— Panics — Results — Banks increase, despite abuses of banking — 
Effects of rapid contractions of currency — What is called specie pay- 
ments — Banks at the mercy of the mob — Men of business at the 
mercy of banks 475 

§ 4. Public right to the facilities afforded by banks — Contractions of 
the currency, and results — Remedies — Discounts, proceeds payable 
at a future day in money, but receivable at all times for debt-s to 
banks — Deposits payable at a future day, but receivable in bank 
for debts — Bank-notes payable at a day future, but receivable 
for debts — Long credits an element of disturbance in the credit 
system — Diversion of funds of the credit system from their proper 
channels — Country banks — Their business of a different nature — 
Present banking system not adapted to it 489 



Distinction between prices of precious metals and interest, or the price 
payable for the use of them — The price of each fixed by the State — 
Evasion — Fluctuations in price of gold and silver not coincident 
with rates of interest — High interest makes no demand for coins — 
Demand for facilities of credit system determines the rate of interest 
— Higii interest does not arise from scarcity of that for which in- 
terest is paid, but from fears of banks and capitalists — Usury laws 
should not apply to paper of the credit system — Amount paid yearly 
in the United States for interest — Objections — Interest a part of 
the expense of commercial adjustment — Not a question of money, 
but of dispensing with money — Economy of interest practicable in 
England and the United States 509 




1 1. Complexity of the subject — Market value expressed in money 
of account — Money is for payment — Prices, sales and payments 
distinct tilings — Elements of prices — Influence of interests and 
passions — Necessity of purchasing — Necessity of selling — Fashion 
and fancy — Plenty and scarcity — Demand and supply — Monopo- 
lies — Commercial legislation — Duties — Speculation — Cost of pro- 
duction — Prices in great marts of trade 521 

§ 2, Eflfect upon prices of quantity of money — Theory of Montesquieu 
acceded to by Hume, Locke, and Harris ; denied by Sir James 
Stewart, Adam Smith, Lauderdale, Malthas, Ricardo, Torrens, 
M'Culloch — James Mill — Prices not expressed in coins, but in 
money of account — Wholesale mainly control retail prices — Lauder- 
dale — Malthus — Torrens — M'Culloch — Conflict of opinions — 
Marquis Gamier — Adam Smith — Ganihl — Humboldt's propor- 
tion of gold to silver — Jacob on precious metals — Rise of prices not 
in proportion to the increase of money — Arthur Young's inquiry into 
the progressive value of money — Tables of prices in Spain — Beawes 
— Prices of wheat in France 538 

§ 3. Effects of bank currency upon prices — Increase of wealth in 
Great Britain in 18th century — Advance in prices increases cur- 
rency — Power of purchasing depends not upon money, but upon 
personal confidence — High confidence leads to speculation — Lord 
Overstone — Tooke's History of Prices — His examination before the 
Secret Committee of 1832 — Evidence on prices before Parliamentary 
committees of 1832 and 1840 — Influx of gold from California and 
Australia — Comparison of currencies in United States in 1848 and 
1856 — Prices the scale by which products of labor are exchanged — • 
Justice to labor determined by what men can purchase, not by the 
price they pay 564 



2 1. Processes of receiving and paying — British Exchequer, its prac- 

tice — Exchequer bills introduced by Earl of Ilalifiix — British reve- 
nue always anticipated — Floating debt a saving of interest — Ex- 
chequer bills suited to a certain class of lenders — Quantity carefully 
gauged to the demand — Wisely managed by the Bank of England — 
Advantage of disbursing revenue before its receipt, thus furnishing 
the currency in which the revenue is paid — Amount of Exchequer 
bills issued — Reduction of circulation by sale of Exchequer bills — 
Rate of interest — The Exchequer and the Bank — British system 
in contrast with that of the United States 577 


^ 2. Financial system of Franco — Count Mollien and Marquis D'Au- 
jiffret — Harmony and subordination of the system — Outline — Re- 
lations with domestic exchange — Special distribution of public 
funds — Money in treasury shortest time possible — Economy of 
new system — Commission on transfers — D'Audiffret — Money ad- 
vanced on public account — Firmness of the system — France first 
appreciates relations of public finance with trade and industry — 
Perils of credit lessened by this system — Want of details — Contrast 
with system of United States 594 

g 3. Treasury of the United States — Act of Congress, 184G — Paper 
currency the usage of the country — Departure from usage — Efi"ect 
upon banks — Advance of interest — Increase of private banks — 
Economy of the system — The remedy a step towards banking — 
Domestic exchange and the treasury — Centre of operations of trea- 
sury and domestic exchanges in New York — Transmission of funds 
to and from New York — Paper operations of treasury — Present 
system and the public creditors — Indirect taxation and California 
gold favored the Independent Treasury 605 

]^ote. — Extracts from Reports of Secretaries of Treasury, Mr. Meredith 
and Mr. Guthrie, on the subject of Independent Treasury, and also 
from Report of Mr. Casey, Treasurer 613 

g 4. Independent Treasury a result of financial difficulties — State 
banks — Currency of government paper and specie — Opposition 
to banks and paper currency — Bank of France — Banks not to 
be crushed, but replaced — Financial system of the act of 1846 — 
Treasury notes payable on demand without interest, and at six and 
twelve months with interest — French loans of 1854-5 — Whole loan 
offered by people in France out of Paris — Board of Treasurers — 
Principles restricting the issue of treasury notes — Lenders of 
money, their relations with the treasury — Offices in Washington 
and Now York — Connection of treasury with domestic exchange — 
Friction — A remedy required, and co-operation of the treasury — A 
national institution to form point of contact between the treasury 
and the domestic exchange 621 

Note. — Mr. Guthrie's remarks on banking system of United States, . . . 626 



"We propose to offer here, in as condensed form as practicable, 
what may be considered as the leading positions of this volume. 
A statement of this kind will enable every reader to glance more 
readily over those portions of the work of most interest to himself. 
It is taken for granted, that whilst there are so many conflicting 
opinions on the subject of money, currency, banking and credit — 
that whilst both theory and practice remain in doubt and dispute, 
and no authority high enough to settle these differences has yet 
appeared — there is room for the labors of those who may wish to 
furnish materials for the final adjustment of many vexed questions. 
It is further assumed that writers treating of these subjects have paid 
too little attention to the fact, that whatever concerns money, cur- 
rency, banking and credit, must be considered as strictly subordinate 
to commerce^ of which they are merely agents ; this cannot be over- 
looked, in any aspect in which these topics may be considered, with- 
out hazard of error. 

The chief inquiry is not. What is the power of money ? or. What 
is the use of money ? or, What can be substituted for money ? The 
inquiry which we prosecute, to ascertain the nature and doctrine 
of money, is. What is commerce, and what is the nature of the 
agency of money in its affairs ? Money, with all its substitutes, is 
only one of many agents of trade, and, like many others, it is a pure 
matter of discretion and convenience how far it may be employed. 
Warehouses and ships are very needful and much used agencies of 
commerce ; but a great business may, upon occasion, be done with- 
out them. It is with money, as with every other expensive agency 
of commerce, a question not how much it can be used, but how far it 
can be dispensed with. It has always been, and must always be, a 
chieflconsicrei'atlUH' iJf the practical merchant, to ascertain to what 
1 (1) 


extent his business can be conducted without so expensive ari agent 
as money. ]>y the progress of civilization, commercial integrity and 
Christian virtue, it is now possible to carry on immense operations ia 
trade and manufactures without any aid from money; excepting the 
merest retail business, not one per cent, of the payments of Great 
Britain and the United States are made in real money. 

The main subject of this volume is not, therefore, money, but pay- 
ments. The inquiry before us has been, not the nature and use of 
money, but how are the payments or adjustments of commerce effected, 
whether by money or otherwise. The object has not been to bring 
forward new doctrines, or to propose reforms, but to attempt a very 
ample and thorough analysis of the present modes of employing 
money and credit in the current business of industry and trade. We 
have supposed that the best preparation for reforms and improve- 
ments would be a perfect understanding of the present system, in 
its various forms. Any suggestion in these pages which may seem 
to go beyond this, is made with the greatest diffidence, and more by 
way of contrast or illustration than as advice or doctrine. 

It has long appeared to us a grave mistake in those who have 
treated of money, that they leave out of vjcvv money of account, with- 
out a due understanding of which, as an agency of commerce, much 
confusion must reign in the minds of all who approach the study of 
money or currency. Gojd. ajiid silver are commodities of great value 
in small compass, selected for coinage, and made the legal standard 
of payment ; money of account is the language in which prices are 
expressed, and books of account are kept. A merchant may, in a 
few minutes, cast his eye over a hundred entries in his journal, in 
which the sums debited for goods sold may run, in various fraction- 
ary sums, from ten to a thousand dollars. He sees at a glance, and 
understands at what rates the goods were sold. But if the exact 
sum in coins corresponding to each entry was placed opposite to the 
entry, instead of the appropriate figures, it might require hours or 
days to ascertain, by counting and examining the coins, what is other- 
wise understood in a few minutes. So, likewise, naming prices in 
money of account is quickly done, and instantly understood ; but 
making payments in coins is necessarily a slow operation. We dis- 
tinguish, then, between the term money, as applied to giving prices, 
to keeping books of account, to expressing suras on the face of pro- 
missory notes, bills of exchange, and other securities, and the term 
money, as applied to coins used in making a payment; and this dis- 


tincti.011 we hold to be so important, that the subject cannot be well 
understood without it. To some it may appear as if we had labored 
this point at needless length, and with unnecessary minuteness ; but 
regarding it as the key to many difficulties of finance, and consider- 
ing the neglect of the subject hitherto, we have thought it better to 
be profuse of illustration, than to fail of our object in securing for 
money of account its true position in the consideration of the subject. 

People may change their coins once a month ; but they scarce 
change a money of account in half a century. In many of the more 
retired portions of the older States of the Union, the people still 
reckon by the colonial currencies of pounds, shillings and pence, as 
they existed in each of the respective colonies before the era of our 
independence. The use of a money of account is a mental operation, 
and is a characteristic of every civilized people. The same mental 
habit is applied to the use of weights and measures, which makes it 
extremely difficult to change even what is obviously absurd ; people 
prefer denominations to which they are accustomed, even when incon- 
venient, to those which are more simple, but which need the fami- 
liarity of habit to make them appreciated. 

We have, therefore, treated money of account as a leading element 
of the subject. It is the language of prices, of books of account, of 
price-currents ; it is the mode of expression employed in all money 
securities, to denote the amount for which they are given ; and, in 
fine, it is the very language of finance. To leave money of account 
out, when the whole subject of currency, banking and credit is in- 
volved, is like leaving arithmetic out of mathematics. It is for want 
of attention to the real agency of money of account, that such expres- 
sions as the "power of money" are often used, when only the power 
of credit is intended. When a merchant inquires the price of a hun- 
dred bags of coffee, learns the rate, and makes the purchase, giving 
his note for the amount, money has exercised neither power nor influ- 
ence in the transaction. It was the power of credit which made the 
purchase, and the power of money of account which enabled the par- 
ties to understand each other, make the transaction, and take the 
note for the amount of the purchase. The greatest power in the com- 
mercial world is commercial integrity, and the confidence or credit 
which it inspires. This is the power which moves nine-tenths of the 
commodities found in the channels of trade and industry. 

Money, by which we intend coins of gold or silver, is neither a 
standard of value, a measure of value, nor a representative of value. 


The precious metals are commodities of value, and do not, of course, 
lose that quality, though they gain another, by being coined. They 
become, by coinage and the law of legal tender, a standard of pay- 
ment. Every man may, by law, claim payment in coins ; that is, for 
any commodity previously sold, for any debt due, every person may 
exact the expressed equivalent in the commodity of gold and silver 
assayed and coined at the mint in denominations agreeing with the 
money of account. All debts are thus payable ; and it is only be- 
cause the parties agree to other modes of payment, that all debts are 
not thus paid. 

There are many obstacles to the use of coins in large transactions, 
besides their great cost; among these, the risks of theft and robbery, 
and the care and anxiety which these hazards impose, the danger of 
counterfeits, the rapid wear and deterioration of coins, the frauds of 
clipping, punching, sweating, and many others, which are regarded 
as severe grievances and trials in all countries where an exclusively 
metallic currency has long prevailed. All these combined have pro- 
duced a constant eftbrt to escape the employment of coins in large 
transactions. Gold and silver coins have not lost their interest in the 
eyes of men ; they are still the standard of payment, and universally 
an acceptable medium of exchange ; but they are far from being the 
universally employed medium of exchange. The men of trade and 
industry, who but receive money in large amounts to pass it off in the 
same way, are more concerned to escape trouble, risk and expense in 
the matter of payment, than anxious to employ only gold and silver 
which have passed through the mint. 

At the present time, then, the precious metals are employed only 
as the standard of payment, or legal tender, to be appealed to in case 
of di.sagreement, a very rare occurrence; as the medium of the merest 
retail trade ; as a reserve or security for tlicir issues, by banks of cir- 
culation ; and as the medium of i)aying balances of trade, both 
foreign and domestic. All these together make not five per cent, of 
the operations of industry and trade in this country, or in Great 
Britain. We cannot adojjt any safer criterion of the actual power 
of the precious metals as money, than what we see ; their import- 
ance and use is precisely what we know to be done with them ; no- 
thing more. All the rest is accomplished by means of credit, and 
the many processes of the credit system. 

It must be a great and mischievous fallacy, then, to regard gold 
and silver coins as a sort of model medium of exchange, to the cha- 


racteristics and incidents of which all other modes of interchange 
must be made to correspond. This is nothing less than an attempt to 
fasten upon industry and commerce the very shackles and inconvf. 
niences wliich they have long been struggling to cast away. There 
are many ways of making payments without using coins, each of which 
may stand for what it is worth, and be employed according as it may 
be available, without being tortured to work as coins would have 
worked, if they had been employed. When two men of business deal 
largely together, keeping the record in their books of account, which 
once in three months are balanced, and the mutual debts thus paid 
without any use of coins, there is no possible sense in which the mutual 
payment thus effected could be made more effectual by any reference 
to coins, than by this simple and economical method of balancing the 
sums of the various entries, debts and credits, expressed in money of 
account, the one against the other. This mode of payment needs no 
aid in theory, in practice, or by analogy, from any employment of 
coins ; but this mode of payment is one of the main devices of the 
credit system. As the debts of men of business find their way into 
the banks, so do their credits ; and the functions of the banks, 
stripped of their many complications, consist chiefly in balancing and 
thus extinguishing the debts and credits of their customers. 

There is no ground, we think, for the doctrine that the incidents 
and characteristics which attend a currency of gold and silver should 
be imitated, or even referred to, in the processes of the credit system, 
much less be regarded as laws. ATT are equally agents or processes 
of commerce, ancl^TiiTist be considered and judged upon their respec- 
tive merits, and be employed according to the opinions and sound 
discretion of the parties concerned. Coins become indispensable only 
when claimed as a legal right. 

The real origin of the deposit banks, such as Amsterdam and 
Hamburg, was the worn and deteriorated state of the coinage, which, 
at that time, was a grievance of a magnitude which only those fami- 
liar with the commercial history of that period can realize. This evil 
is only less now, because the circulation of coins is nearly dis[)ensed 
with. These deposit banks proved to be more useful than their pro- 
jectors anticipated. The circulation of the ownership of the coins 
was found to Ijc much more rapid and easy than the circulation of 
the coins. The wear and tear was saved, and they w^ere more effi- 
cient in bank than out of it. And it was ultimately revealed at Am- 
sterdam, that the transfers and payments at the bank could proceed 


for scores of years after the specie had been removed. This, how- 
ever, should have been well understood from the first establishment 
of the l)ank ; for, while the ownership of the deposits was changing 
every day, no one had an opportunity of verifying the fact of the 
amount being actually in the bank. Every man who accepted a 
credit in the bank took it upon his confidence in its administration. 
The money system, to this extent, thus resolved itself, by a sort of 
necessity, into a credit system. 

The credit system was, in fact, a growth (ex necessitate rei) of ne- 
cessity. It was indispensable to the advance of civilization and 
industry ; it grew with the progress of commercial punctuality and 
integrity ; it now flourishes only in this soil, and cannot be destroyed 
where it finds this aliment of its growth. It sent forth many vigorous 
shoots, in various countries, long before it attained its present mag- 
nitude and wide extension. The payments at the fairs so prevalent 
in Europe during the middle ages, some of which continue even down 
to our time, were, to a large extent, made by setting-off debts 
against debts. Men learned to pay their debts with their credits ; 
and this mode of payment only disappeared as the jirogress of the 
credit system, and the growth of cities, absorbed both the business 
and the payments of the fairs. These payments at the fairs revealed 
that the best fund with which to pay debts is debts. Every debt 
implying a credit, no one could better employ his credits than in 
paying his debts. This required no money, and was, therefore, not 
only economical, but free from innumerable risks and troubles inse- 
parably connected with payments in money. 

The Banks of Yenice and Genoa were both remarkable forerunners 
of the credit system, and beautiful examples of its economy and 
power. The political and commercial importance of these two great 
republics were, in a great measure, owing to their respective banks, 
the oldest and most important of which we have any account. The 
lessons taught by these institutions have no doubt entered largely 
into the progress of the credit system, as now developed ; but we 
strongly insist that the study of the system of these two banks is yet 
necessary to any thorough comprehension of the power of credit, and 
of what is necessary to an enlarged and efificient financial system. 

The capital of the Bank of Venice consisted of a debt due by the 
republic to its citizens. The government took the money, and gave 
in its place an inscription on the books of the bank for the amount, 
bearing interest. The government returned the money immediately 



into the channels of circulation among its citizens, whilst the lenders 
of the money circulated the debt as a deposit in the bank. All the 
large payments of this great commercial city were, for nmny centu- 
ries, paid in this fund, and the gold and silver coins were released 
for the purposes of the retail trade, the payment of foreign debts, 
and the foreign expenditures of the republic. Tlie government of 
Yenice dealt faithfully with these holders of stock in the bank, not 
only paying the interest punctually, but redeeming any amount which 
seemed superfluous, or beyond the demand of the public. This 
policy not only kept the bank fund at par with specie, but more 
than twenty per cent, above it. The bank was always open to 
further loans to the government, when such investment was in de- 
mand. The capital of the bank fluctuated in amount according to 
the wants of the people, and not according to the wants of the public 

- The Bank of Yenice performed its functions for over five hundred 
years, with an uniformity of success, and immunity from censure or 
complaint, which no other currency has enjoyed for a tithe of that 
period. During that time of vast commerce and immense public 
expenditure, the repuljlic had incessant trouble with their own and 
foreign coinage, and very many stringent regulations were made and 
enforced, to cure evils and prevent abuses ; but we have no record 
of abuses on the part of the bank, or of injuries inflicted by it upon 
the people. 

Believing that the commercial fairs of Europe, and the Banks of 
Yenice and Genoa, were capable of imparting historical lessons not 
yet properly appreciated, we have brought them more prominently 
before the reader than has been done in any work upon money or 
currency. We have, in later times, acliieved a method of clearin"* 
debts between banks ; but a lesson may be learned from the pay- 
ments at the fairs, of successful clearing between individuals. There 
is no reason, in theory or in practice, why clearing may not, to a 
considerable extent, be practised between individuals mutually in- 
debted; The history of these fairs furnishes abundant exemplilica- 
tion of this most economical and effective of all the modes of pay- 

The history of these celebrated banks furnishes other lessons 
which will richly repay the most careful attention. They demon- 
strated the •ellicacy of circulating deposits as a means of payment, 
ard. that the deposits were just as ell'ective when they consisted 


of a debt due from the government, as if they were gold or silver ; 
and tlicy showed that it was possible to keep the amount of this 
public debt, as hold by the depositors in the banks, within a 
range of amount which not oidy prevented depreciation, but kept 
the deposits always from fifteen to thirty per cent, above gold and 

The distinction between credit — the confidence which men place 
in each other, and which induces them to defer the day of payment 
for goods purchased — and the credit system has not, in our view, 
been sufficiently observed. The credit system springs from credit; 
there could be no credit system without the exercise of that confi- 
dence which accepts a future instead of a present payment. The two 
processes are, however, wholly different; credit refers to confidence, 
and to the jjostponement of payment ; the credit system refers chiefly 
to the mode of payment. It is that system by which the payments 
for commodities are separated from the transactions to which they 
belong, and made a separate business. More than nine-tenths of all 
the payments of industry and trade are effected through the processes 
of the credit system. The payments thus made are in no degree 
connected with, nor dependent upon any reference to, or any employ- 
ment of the precious metals. The credit _,sy;st?™_ii_y^^-^ \yhich 
men set-off the debts wliich others owe them against those which 
they owe to others. This, of all modes of payment, involves the 
least risk, and is the most effective, satisfactory and economical. 
No currency can be more suited to pay a man with than that which 
he has issued himself. It is that which the credit system employs ; 
and it may be added, that this system keeps books of account for 
those who avail themselves of it, in which they take credit for what 
others owe them, and are debited with what they owe others. 

The magnitude and complication of the credit system conceal 
its details, and render it, as a whole, difficult of comprehension. It 
is only by severe and continued analysis that the processes of this 
vast system of payments can be even partially displayed to the view 
of the reader. 

Books of account may be regarded as one of its most effective 
agencies. The merchant who debits a manufacturer five thousand 
dollars for raw materials in the course of six months, and gives him 
credit for finished goods to the amount of seven thousand dollars in 
the same period, is very willing to unite with his customer in dis- 
charging ten thousand dollars of this debt by balancing the account 


between them, leaving only two thousand to be paid otherwise than 
by the balance. The merchant and his customer each receive pay- 
ment of five thousand dollars without money or currency. Each is 
paid with the debt lie owes ; the book is the evidence of the debts, 
and the balancing is the act of payment. 

The issue of promissory notes by each of these parties for the five 
thousand dollars does noL^alterthe nature of the transaction, but only 
the mode of payment. \The notes, instead of the books, become 
evidences of debt ; and if the notes are exchanged directly, no other 
payment is necessary. If the merchant finds it for his interest to 
negotiate the note held by him, the complication commences. But 
the debts to be paid are not increased ; the real nature of tlie busi- 
ness remains the same ; the parties have only changed. The mer- 
chant receives the amount payable to him from the person to whom 
he negotiated the note ; and with the amount so received he can pay 
the^note given by him to his customer ; and this customer can, with 
the amount so received, pay the amount of his note negotiated by 
the merchant. It is the same when both parties negotiate the notes 
they take ; both remain debtors for the notes they gave, and both 
receive the amount needful to ])ay, from the parties to whom they 
transfer the notes. It is thus with all who give and take notes in 
the course of their business ; they use the notes they receive to effect 
the payment of the notes they give ; and it is the same with bills of 

To effect this, further complications and devices become necessary. 
A class of men is formed, who make it their business to deal in 
these securities, or evidences of debt. If a banker or broker pur- 
chases the two notes given by the merchant and his customer, it is 
obvious that both receive the means from him to pay the notes, 
of which he has become holder and owner. The process of payment 
between them will be very simjjle, if the banker merely give each of 
the two parties credit on his books for the proceeds of the notes pur- 
chased of them. Their respective checks on tliese credits pay oiT 
the whole indebtedness, except the interest deducted for the time 
the notes had to run, which interest they must pay in other funds. 

Banks become, in this way, substantially book-keejiers for their 
customers. They discount promissory notes and bills of exchange 
at their instance, giving them credit in account for the proceeds ; the 
banks can well afford to take checks upon these proceeds in pay- 
ment, because they give nothing else for the paper ; and every check 


given in payment reduces the liability of the bank to that amount. 
The custoniei-s of the banks are indebted in large amounts for notes 
given, and are creditors in large amounts for notes received ; the notes 
are all either discounted by the banks, or placed in them for collec- 
tion ; and the banks thus represent both creditors and debtors. So 
far as the banks have issued bank-notes, or given credit for i)romis- 
sory notes and bills of exchange, they can receive them in payment, 
for it is their own currency. Their liabilities to the public are for 
bank-notes, and credits on deposit ; and the return of these in pay- 
ment is a redemption, to that extent, of their liability. 

The books of the banks furnish, thus, a mode of adjustment by 
which the customers are enabled to apply their credits to the pay- 
ment of their debts. The profit or commission of the banks is the 
interest for the time the discounted notes have to run. Promissory 
notes placed in the banks for collection are usually paid in the same 
way : the banks can afford to take their own currency for tljese 
also, because it is, to that extent, a further redemption of their debt 
to the public. So far as the indebtedness of the customers of the 
banks is mutual, it is readily extinguished, for to that amount the 
debtors hold credits sufficient to make their payments. Every one 
who has a balance to pay, must do it, of course, to the satisfaction 
of the bank. It is by the operation of this process that the dis- 
charge of much the largest portion of the debts annually paid in 
the United States is effected. 

This process continues with a regular step, because the notes held 
by the banks mature day by day, and must be met ; the proper fund 
to pay them is that which the banks gave for them, and this is not 
only the most abundant, but the most accessible. The demand for 
this fund is, therefore, as strong and constant as the necessity of 
paying commercial paper at maturity. In becoming chief creditors 
of the men of business, the banks issue a currency which would not 
otherwise e.xist, and which becomes a medium specially adapted, in 
quantity and kind, to pay every debt due to them. The debts pay- 
able at the banks are the proper absorbents of the currency issued 
by the banks. This currency is good, and attains circulation be- 
cause it is in demand, not only by all the debtors of the banks, but 
by all who are their debtors. Such a large and constant demand, 
in fact, makes this currency available to a very wide extent. 

The debtors of the banks become such by giving promissory notes 
for commodities of trade in general use ; and they stand ready to 


receive for these commodities that bank currency which will pay 
their debts. The tendency of this currency is, therefore, and should 
be, to flow back to the banks in extinguishment of debts there 

In this, as in many other things, where the largest advantage is 
found, there is found also the greatest danger of abuse. The great 
demand for this currency, arising from the urgent necessity under 
which debtors to the banks are placed, of paying their notes as they 
mature, invests the bank currency witli the full power of money ; for 
that which will pay such a vast amount of debt is needed by so 
many, that it will purchase whatever can be obtained for money. 
The banks seem thus to have it in their power to manufacture 
money, and they are importuned to lend this currency as if it were 
money. Their power of safely issuing it is limited strictly to the 
demands of those who require it to pay debts maturing in the banks. 
It can only be good when the debtors of the banks are able to pur- 
chase it from the hands of the public, and when they do so purchase 
it to pay their debts in bank. It is not money ; it has only this 
function of paying debts in bank, and circulating as a substitute for 
money, un^IeFTEFslfhiulus of the demand for it by the debtors of the 

The banks have, however, at various times and places, fallen 
largely into the error of lending their currency as money ; and there 
have been many occasions and periods when their debtors became 
unable to return it to the banks ; and then it was often found that 
the promises of the bank were worth not so much as the paper on 
which they were printed. No more of this currency can be issued 
safely than the banks can find not merely safe men to borrow, but 
men who have something with which they can actually redeem it 
from the hands of the public, and restore it to the issuers. If the 
circulation is not kept active Ijy the demand of the debtors, and if 
they do not return it at as rapid a rate as that at which it is issued, 
payment will be demanded of the banks at a rate with which they 
cannot possibly comply. This al)use of issuing currency without 
due precaution, and in amounts wholly unjustifiable, is the most com- 
mon, and one of the worst abuses of baidiing; and it occurs from 
ignorance far more frequently than from iVaud. 

The remedy for these evils which has been most relied on, is that 
of placing the banks under stringent obligations to pay their cur- 
rency on demand in specie. This would be a complete remedy, if 

12 I X TR D r C T I X . 

compliance were possible ; but that is not the case — far fi'om it. It 
involves a stock of the precious metals in the country equal to the 
deposits and circulation of tlic banks, and applicable to this purpose 
of remaining in the ban.ks as a security for their issues. Security, 
absolute security, sliould be required of the banks; but it is surety 
au error to assume that the security must be gold or silver. There 
arc many ways of securing debts, but gold and silver are rarely 
thought of as security ; yet it is recpiii-cd of the banks to three times 
the quantity in the country. The banks are required to hold this 
security for public benefit, which involves two great absurdities ; 
one, that the banks should bind themselves to perform an impossi- 
bility ; the other, that they should Ije the holders of the security on 
which the public is to rely. 

The fact that baidc currency can, to a certain extent, perform the 
functions of money is only incidental ; it is not its office, nor special 
purpose. Because its special use, however, gives it this power, and 
therefore opens a wide door of temptation to abuses and over-issue, 
security becomes necessary not only as a restraint, but to make good 
losses and damage. This security should, therefore, not only be 
such as can be given, but such as would be always safe and avail- 
able ; and the banks should not be the holders of it. 

The exaction of payment on demand by the banks in coins for all 
their issues, is not only a demand with which they cannot comply, 
but it has served further to obliterate the distinction between bank 
issues and money. So long as no demand is made upon the banks, it 
is assumed that their issues are convertible at the will of the holder. 
They obtain, by this means, a higher credit and wider circulation ; 
and that is looked upon as money which is, by theory, convertible, 
and which is assumed to be so in practice. The temptation to both 
banks and borrowers is thus increased, and the volume of l)ank 
issues swelled, until a collapse becomes inevitable. As the special 
function of bank currency is to pay debts to the banks, the rule of 
issue should be not what they can put into circulation, whether depo- 
sits or notes, but what they can recall by the payments of their 
debtors ; for if they do not return the notes, the baidvs can never 
redeem them. 

In all the processes of industry and commerce, there is probably 
no absurdity tolerated equal to that practised by the banks, of dis- 
counting the paper of their customers running from two to six 
months, and giving their bank-notes or credits payable on demand 


ill coins. The persons who give these notes take from two to six 
months to arrange for their payment ; the banks intervene, abolish 
the credit which the course of trade dictated to the parties, and be- 
come responsible for the whole instanter. 

The banks of the United States incur this liability every year, to 
the extent of not less than $3,000,000,000, and are at no time free 
from a demand for less than $500,000,000 in specie, a quantity more 
than double that in the country, and tenfold that held by the banks. 
There is no conceivable plan by which the banks could fulfil this en- 
gagement. It would be impossible for the drawers of the paper thus 
takeu by the banks to anticipate tlie maturity of their obligations, 
and pay them in coins ; any law framed to enforce such anticipation 
would be regarded as the height of absurdity and injustice. It is 
this fearful blunder which has made banks of circulation the terror 
of many minds, and the object of such prejudice and reproach as 
scarcely has a parallel. AVhilst they fnlhl their legitimate functions 
of purchasing individual paper with their own currency, and receiv- 
ing that currency again in payment, their usefulness is admitted and 
extolled ; but whenever the sole test of their soundness is applied, 
and payment in coins for their issues is demanded, they have no 
choice but to be ruined, or to ruin their customers. They cannot 
pay their notes and deposits in gold or silver, and must suspend, or 
commence a contraction of the currency which works a public injury 
many times greater than the capital of the banks concerned ; it not 
only ruins individuals, but causes the sacrifice of a vast amount of 
property, and works a still greater loss by depreciation. 

If this test of paying all liabilities on demand were applied to the 
richest firms in the nation, they would all fail. That the banks 
undertake thus to pay docs not alleviate the absurdity ; for, on the 
one hand, they should not be permitted to undertake an impossi- 
bility ; and on the other, no reliance should be placed upon a secu- 
rity aljsolutely unavailable. 

We impose upon the banks, as a test of their solidity, a condition 
which, when the time of trial arrives, becomes a scourge to the whole 
community in which they are situate. It is a test which enables the 
banks to resist the fulfilment of their engagements by inflicting a 
grievous calamity upon the public. When called upon to pay on 
demand, they resist it with all the powers of attack and defence they 
can wield ; and they claim to be sound, not unfrequently, because 
they have hurt the public more than the public has damaged them. 


Ill place of this dangerous condition, the banks should be required 
to give ample security for both their notes and deposits, and that 
security should be lodged with the State ; they should be required, 
under severe penalties, to keep their issues at par with specie. 
Their notes and deposits should, at all times, be receivable for any 
debts due to them, or piiyablc at their counters ; but they should not 
be bound to pay specie in any other way than it is payable by their 
customers ; that is, at the maturity of the paper discounted or pur- 
chased by them. If the individual paper taken by the banks averages 
two months to maturity, then their customers have these two months 
in which to employ the bank-notes and deposits issued to them in 
payment of their debts in and out of bank ; and during that period 
of adjustment, the banks should be exempt from any demand for 
specie upon their issues so employed, both because they are perform- 
ing a legitimate office for which they are specially adapted, and from 
which they could not be withdrawn without serious evil ; and because 
the credit on the paper for which they were exchanged is not ex- 
pired. The claims of the banks on the public ought to proceed pari 
passu with the claims of the public on the banks. 

On this principle, the issues of the banks would be absorbed in 
payment of debts due to them. If not so absorbed, the banks should 
only receive in payment that which will redeem them when presented. 
Whatever liabilities of the bank are not thus redeemed, should be 
amply covered by available security. 

The practice of paying or extinguishing debts by the process of 
clearing, now becoming so common among the banks, is not new. 
Three centuries ago, a very large proportion of the payments of cen- 
tral Europe were made in that way. Then it was effected, on a 
large scale, between individuals ; now it is wholly confined to ths 
banks. Then it was the chief mode of accomplishing the vast pay- 
ments arising from the trade of the multitudinous fairs of that period ; 
and it so continued, until other modes of commerce supplanted that 
of the fairs. The clearing at the fairs was simply a process of set- 
ting-off debts against debts — the same, in effect, as balancing booi' 
accounts. A. said to B., you owe me a thousand florins; pay that 
amount for me to C, to whom I am in debt. This being done, A. 
is acquitted, and thus the process goes on. It is obvious that the 
final balances, among hundreds assembled for that purpose, may be 
reached by setting-off mutual debts, and drawing verbally on each 
other at sight, where the process involves more than two persons, and 


thus continuing to pay, until tlie result is reached of those who have 
more coming to them than they had to pay, and of those who had 
more to pay than they had due to them. The conclusion of the whole 
was, that the balances to pay were the exact amount of those to 

The mode of payment which had most prominence in large trans- 
actions, after clearing began to lose its importance with the decay 
of the fairs, was that of circulation. This was practised not only at 
the great Banks of Venice and Genoa, but also at the deposit banks 
which succeeded them. The same money in a bank, or the same 
credits upon the books of a bank, was by this method kept circulating 
or passing from person to person, accomplishing a continued circle 
of payments. Its effectiveness did not come to an end, for it moved 
in a circle embracing nearly the same parties, gradually passing from 
the men of one generation to those of another. This circulation is 
still in full vigor in the Bank of Hamburg, and other survivors of the 
deposit banks of the seventeenth century ; but it has no counterpart 
in our more modern institutions. The deposits in our banks are the 
proceeds of discounted commercial paper. The credits issued by the 
banks, of which these deposits are composed, are absorbed and 
wholly extinguished whenever they are paid to the banks. Their 
place is supplied continually by new discounts and new credits. 

This mode of payment by circulation of the same money, or the 
same fund, as, for instance, national debt, differs from clearing. In 
the former, it passes from hand to hand, performing all the payments 
its successive owners can effect with it. If these owners were seated 
at one table, they could circulate a sum in coins from hand to hand 
to the same effect, and see the money before them at the same time. 
But if seated at the same table, they could extinguish a large portion 
of their debts by simply exhibiting their claims, and balancing or 
clearing them, so far as mutual, and by verbal transfers, as in the 
fairs, until the final balances were reached, seldom over five per cent. 
on the amount paid. 

Clearing is, beyond all question, the simplest, the most economi- 
cal, and when applicable, the most efficient of all modes of ])aying 
del;ts. It is precisely analogous to balancing accounts. Parties 
w^ho are in Ijusincss relations arrange to ascertain daily, or at con- 
venient times, the state of their mutual claims ; and having verified, 
extinguish them by set-off. The banks of New York extinguished 
among themselves in that way, in 1857, upwards of $7,000,000,000, 

16 I N T n D U C T I N . 

or upwards of $20,000,000 each day, upon which the daily balances 
did not exceed five per cent. This enormous sura is cleared in New 
York alone, without the use of any currency or medium of payment 
wliatever. It is done by evidences of debt bearing- the items of 
mutual claim, by a statement of the amounts, and by the processes 
of a balance. 

Tlie banks in other cities avail themselves also of the economy and 
facility of this process. These clearing establishments have been 
gradually improving their methods, and we believe there is yet room 
for progress in that respect, not only as between banks, but that the 
same principles and processes are susceptible of many applications 
between individuals. This would not only be an advantage to those who 
may adopt them, but would exert considerable influence in reducing 
friction in the operation of the money and credit systems. A com- 
prehensive treatise on this subject, in which the subject should be 
thoroughly treated in reference to its possible applications to clear- 
ing between individuals, would be an important addition to commer- 
cial literature. The fact that those who give credit to the greatest 
extent take it from others most liberally, and that the object of such 
persons is to apply their credits to pay their debts, furnishes sufficient 
ground upon which to build such an inquiry. 

The subject of interest has engaged our attention upon only two 
or three points. Interest is almost exclusively considered in the 
light of a charge for the use of money. No adequate explanation 
of the term interest, as now very generally employed, can be given 
from that point of view. Strictly speaking, very little monej' is lent 
upon interest; there is probably, in the United States, ten times as 
much interest paid as there is money lent upon interest. We do not 
regard the proceeds of discounted notes, whether they take the 
shape of bank-notes or bank deposits, as money. They are merely 
the credits or securities of the bank substituted for those of indi- 
viduals. Yet these bank-notes, but more especially the deposits, are 
really the chief medium of payment. The fund upon which interest 
is chiefly paid, is that which stands in the banks under the name of 
deposits. The two great items of interest paid in this country are 
the deduction made from notes and bills of exchange sold or dis- 
counted, and loans of amounts deposited in the banks, the proceeds 
of discounted paper. 

Gold and silver are seldom lent upon interest; they are never 
sought for as a medium of payment, because a check upon a bank is 


preferred. Gold will command no higher rate of interest than a 
credit in bank. When interest has advanced even one or two hundred 
per cent., there is no corresponding advance in the precious metals. 
The current rate of interest depends upon the facility of obtaining 
the needful supply of that fund which is usually employed in paying 
debts. It is not the plenty or scarcity of this fund which determines 
the rate of interest, so much as the disposition of the holders. The 
fluctuations in its amount do not correspond with the fluctuations of 
interest. It often happens that the deposits in the banks are largest 
when the rate of interest is highest. 

There are many speculations about the level of the precious 
metals, about money flowing to one country and from another : this 
flux and reflux, when applied to problems of interest, furnish no 
light. Within the range of trade, foreign or domestic, the precious 
metals receive little impulse in any direction from the rate of in- 
terest ; nor do they exert upon it any appreciable influence, except 
so far as the loss of specie by the banks may lead to a contraction 
of the currency. 

We have discussed the topic of prices more elaborately, perhaps, 
than was necessary for our purpose, which was chiefly to show that 
the relation between the quantity of money, or currency, and prices 
was not, by any means, so close as many have supposed. The 
notion long prevalent, that prices were exactly adjusted to the cpian- 
tity of currency, is shown to have been long since exploded. Among 
the innumerable influences which go to determine the general range 
and fluctuation of prices, the quantity of money or currency is found 
to be one of the least efl"ective. 

This subject is specially important as bearing upon the results of 
fluctuations in the issues of banks. Besides the fact, that quantity 
of currency has less effect upon prices than is generally supposed, it 
is to be taken into account that, for all the currency issued by the 
banks, there is a special and constant demand from the debtors of 
the banks, which prevents it from having as much influence as it 
might otherwise have. The debtors of the banks having in their 
possession the whole range of commodities to which prices apply, 
are offering them for this currency, to secure it for their con- 
stantly recurring payments. Their constantly maturing obligations 
do not permit them to hold out for extra prices. 

We have dwelt at some length upon the subject of public pay- 
ments, with the view of turning the minds of financial inquirers to a 


topic which has received too little attention. Public taxation has 
been largely discussed in many countries ; but the mere question of 
the best mode of effecting public payments has not received the 
consideration it deserves. The history of productive industry and 
trade shows that, for the last six hundred years, where civilization 
has been highest, efforts to improve the modes of payment have 
been incessant and most successful. From the origin of the Bank 
of Venice to the present day, in Europe, there has been no rest from 
attempts to facilitate payments, and economize the means and methods 
of payment. The motives which have so long and so continuously 
operated on the ranks of industry and of trade must have been not 
only strong, but well founded. 

That which has so constantly occupied the minds of men of busi- 
ness cannot be beneath notice of governments, under the same cir- 
cumstances. If the annual receipts into the treasury of France are 
$300,000,000 ; if the annual receipts into that of Great Britain are 
$260,000,000; and if, in the United States, the treasury annually 
receives $75,000,000, the mere method of receiving and disbursing 
these vast revenues must become an important consideration — very 
important, if we take the conduct of the most intelligent men of busi- 
ness, for ages past, as a criterion. This importance refers to the 
people from whom the revenues are collected, as well as to those to 
whom they are paid, and to the government itself, in regard to the 
facility and economy of its financial operations. 

A financial system should be specially adapted to the habits and 
customs of the people for whom it is designed. No government can 
long depart from the usages of its people, or disregard their modes 
of business, without paying some penalty, soon or late, for the mis- 
take. We regard the present mode of administering the treasury 
of the United States as involving this error. The habit of the 
people to employ paper currency and credit wherever they are appli- 
cable, is almost universal. This use would be still more general and 
uniform, but for restrictive laws, which the abuses of banking have 
provoked. In the face of this custom of the country, the public 
treasury has rejected the use of paper currency altogether, and 
reserves for itself an exclusive currency of gold and silver. This 
policy has had, during nearly its whole existence, the extraordinary 
support of the California gold-mines, and has not, therefore, deve- 
loped fully the harsh and evil tendencies with which it is fraught 
The day is approaching when this system, if continued in its pre 


sent shape, will create a financial disturbance great enough to shake 
the industry of the country to its centre, and endanger any adminis- 
tration which may attempt to uphold it. 

We have compared our exclusive system, as administered under 
the act of 1846, with the financial systems of France and Great 
Britain, and find nothing in either to justify or encourage us in 
continuing a scheme of finance so fraught with peril to the inte- 
rests of labor and trade. We refer to the manner in which that act 
has been carried out, not to its provisions as they stand in the 
statute book. Our system assumes at once the attitude of being 
independent of the people and the commercial institutions of the 
country. It has been very aptly called the Independent Treasury, 
for it admits no sympathy and no relations with the business or the 
interests of the people. In Great Britain, the Exchequer leans upon 
the Bank of England, the greatest commercial institution of the 
country ; and in this way a sympathy between the movements of the 
Exchequer, or public treasury, is established, which runs through 
and tempers, if it does not control its wdiole operations.' Besides 

1 The following account, given by the "Economist," No. 799, of December, 
1858, page 1400, a commercial journal of the highest character, published in 
London, shows how carefully the authorities of the Exchequer look to the in- 
terests and convenience of those from whom the revenue is collected. Com- 
plaints had been made of the trouble and risk of attending to pay duties, even 
in notes of the Bank of England. 

'•At length, iu 1854, the treasury, of its own accord, devised a scheme of 
■which, as it has been in practice now nearly four years, the success and effi- 
ciency have been fully tested. 

"In the year 1857, the net amount of customs duty received in the port of 
London was £11,495,322, being, in round figures, about half of the whole 
amount collected within the United Kingdom. This sum was made up of 
158,843 payments, at the rate of 514 in number, and amounting to £37,210 
daily. That was the case that had to be dealt with. The ti-easury adopted two 
plans, either of which Avas within the reach of all traders alike. 1. The one 
plan provided for the receipt of the checks of private traders, drawn upon such 
bankers as would comply with certain regulations made with a view to the secu- 
rity and convenience of the customs department. According to those arrange- 
ments, a check being presented at the custom-house in payment of duties, was 
received by the proper officer, and the necessary entries for the ultimate de- 
livery of the goods were proceeded with ; every hour a clerk was despatched with 
the checks which had been received within the hour to the various bankei's 
upon whom they were drawn, who placed their mark upon thorn, which made 
them payable by the Bank of England, where they were charged to tlie different 
bankers' accounts. The clerk then returned to the custom-house with the 


this, the Exchequer is a constant l)orro\vei" from the people, to the 
extent of nearly the whole annual revenue upon Exchequer bills. It 
borrows, in anticipation of the public revenue, from those who lend 
voluntarily upon short loans, and is thus enabled to disburse the 
revenue previous to its receipt. This is a great accommodation to 
a large class of lenders, who are pleased to have an opportunity of 
realizing interest upon short loans, and upon such undoubted secu- 
rity ; this class are thus kept in constant relations with the govern- 
ment, and are prompt to supply the treasury with any required 

checks so marked ; the goods were cleared and delivered ; and the whole checks 
of the day paid to the public account at the Bank of England at the close of the 
day, •where they were adjusted to the various accounts to which they applied. 
By this means a merchant had the check system, and all the security attaching 
to it, extended to the payment of duties, while the Crown ran no risk. 2. The 
other plan consisted of an arrangement with the Bank of England, by which a 
special description of bank-note should be made to be used exclusively for cus- 
toms duties, and to be received at the bank only from the customs department. 
They are denominated customs checks. The different bankers receive them 
from the Bank of England as they do their own notes ; and supply their cus- 
tomers with them as they are required for the specific purpose of paying duties. 
By this means all risk of theft and fraud is avoided. To all intents, they are 
bank-notes, but to be used only for a specific object, and useless for any 

" The utility of these arrangements is now seen by the great extent to which 
merchants Iiave used them. In the last year, the payments of customs duties 
were made in the following way : — 

100,781 payments in cash £3,320,492 

35,317 •' by traders' checks 3,563,966 

22,745 '• by customs special notes 4.610,864 

Total payments... 158,843 Total amount £11,495,322 

Therefore, of £11, 495, 322, the total amount of payments, only £3,320,492 was 
made in cash under the old plan; while £8,174,799 was made in the two new 
modes of checks and special bank-notes. And even those payments which con- 
tinue to be made in cash, consist of the smallest sums, as the number of pay- 
ments made in this way, and representing the smaller sum named, is no less 
than 100,781 ; while the number representing the larger sum is only 58,062. 
The average amount of the payments in cash is £32 19s. ; while the average in 
traders' checks is £101 3.s. 4(/., and in special bank-notes, £204 8s. 2d. 

" But the convenience and security which are gained by the merchant by this 
system, great as they are, do not constitute all the advantages which it affords. 
It effects a great reduction in the currency. But for it, the sum of £8,174,799 
of bank-notes, issued under the limit of the act of 1844, would have been re- 
quired in 1857 more than were actually used." 


assistance in financial emergencies. The creditors of the public 
derive even more advantage from this mode of disbursement in 
anticipation ; for the Exchequer being always ready to pay, the 
whole payments of the annual expenditure are made not only with 
more regularity, but probably weeks, if not months, in advance of 
what would otherwise be the time. 

The present financial system of France, the result of a reform 
which has been in progress under the auspices of men of great ability 
and experience for more than thirty years, is perhaps, in many 
aspects, the most perfect of any now extant. It has rescued the 
finances of France not only from the greatest confusion and embar- 
rassment, but has placed them in a more enviable position than 
those of any country in Europe. To the astonishment of the capi- 
talists of Europe, the government of France was able to borrow, in 
1865, for the expenditure of the war in the Crimea, upwards of 
$250,000,000, without resorting to the city of Paris, or capitalists 
out of France. Not only so, but the sum actually offered in the de- 
partments out of Paris was $332,000,000. This offer to the govern- 
ment was from 300,000 persons in the interior of France, very few 
of whom would have been lenders to the public but for the very ex- 
cellent financial system which now prevails in that empire. 

In Great Britain and France, large use is made of treasury notes, 
called, in the one. Exchequer bills, and in the other. Pons du Tresor. 
In both countries, the ministers of finance are permanently author- 
ized to issue them upon certain principles, and under specific regula- 
tions. In England, the Exchequer bills are issued and managed 
with a skill and success which nothing of the kind can surpass. In 
neither country has there been an over-issue of these treasury securi- 
ties, for more than a generation past. In Prussia, a treasury cur- 
rency in denominations as low as five dollars has been issued, for that 
length of time, and no abase has occurred.' It is very true, that the 
over-issues of the assignats during the French Revolution, of the con- 
tinental paper currency during the American llevolution, and the 
later over-issues in Russia and Austria, are well calculated to create 
distrust in the minds of all whose attention is turned to the use of a 

' Tlie Prussian government is so careful of the credit and stability of this 
emission of currency from the public treasury, that it redeems pi'omptly every 
counterfeit brought to the public offices. By this wise policy, it obtains the 
earliest information of the existence of counterfeits, and is thus able promptly 
to follow offenders. Of course, this greatly increases confidence in the currency. 


paper currency for public purposes. But as this whole matter re- 
solves itself into (questions of knowledge, official integrity, and finan-. 
cial skill, it should not he summarily dismissed, unless it is conceded 
that these requisites are beyond the reach of our government. When 
we remember the fact, that a bank can, with its own notes, or credits 
on its books, purchase commercial paper to the amount of millions 
of dollars, and that it can take its own notes aud issues in payment 
of this commercial paper as it matures, thus providing a special cur- 
rency for this purpose, and saving the use of millions of money — 
when we know that many nations could pay the entire national ex- 
penditure in treasury notes, and that they could, of course, afford to 
take such notes in payment of all dues at their public treasuries, we 
should hesitate to give up the problem of a government currency as 
impossible to solve. 

The truth is, not only can it be solved, but it is of much easier 
solution than many others which constantly engage the attention of 
men in authority. The order, subordination and numerous checks 
which now characterize our treasury department, are a far greater 
triumph of financial skill and good administration than would be the 
successful employment of treasury notes as a currency. Of course, 
such an issue by the treasury could only be upon a well-devised plan, 
and well-settled principles, to be as faithfully observed as are the 
present processes of the many functionaries of the Treasury Depart- 

The leading principle of every such emission of paper, as well as 
that of the banks, is to issue only so much as will return in the regu- 
lar course of the business in which the issue is made. It is not, and 
should not be, the issue of so. much as will not probably be returned 
for payment, but the issue of so much as will inevitably return in 
payment to the issuer. Whatever amount the return payments to the 
issuer will absorb, is a safe emission ; beyond that, all is unsafe. 
The Treasury of the United States could, in any year, issue one- 
fourth the amount of the estimated income in treasury notes ; the 
next year, one-half; the following year, three-fourths; and by the 
experience gained in three years, the officers entrusted with this duty 
could manage such emission without danger of over-issue. If the 
public would not readily receive them, they should not be issued at 
all ; if they should fall below par, immediate measures should be 
taken, at any cost, to recall them in such quantities as would 
restore them to perfect equality with gold. 


The suggestions made in the chapter on public payments are 
chiefly intended to stimulate inquiry, and secure the attention or men 
whose experience in financial affairs, and general knowledge of busi- 
ness, may enable them to tlirovv some light on the interesting ques- 
tions involved in the whole subject. 

Although it has not been our design to propose reforms, or even 
to give intimations of that kind, we cannot forbear introducing here 
a further remark on the subject of bank deposits. In our large cities 
these are of great amount, and upon their management depends very 
largely the state of the currency throughout the whole country. If 
city banks are constrained at any time, by a demand for the precious 
metals, to contract their issues, and to withhold the customary facili- 
ties of banking by refusing to discount commercial securities, the con- 
traction of currency which ensues becomes an occasion of loss and 
damage often tenfold greater than the amount of specie involved in 
the demand. A contraction of currency by the banks in New York 
soon extends its baleful influences throughout the whole land. The mis- 
chief becomes vastly disproportioned to its cause. It is in view of the 
magnitude of this evil, and of its frequent and inevitable occurrence, 
that we make a suggestion, dictated more by a desire to save the 
community from harm, than to save the banks from any liability for 
specie to which they are justly exposed. The banks should be even 
more desirous to prevent these evils than to protect their reserve of 
coins and bullion. 

The danger of the city banks, which drives them to the measure of 
contracting the currency as a defence, arises mainly from liability to 
pay their deposits on demand in specie. Now, however great may 
be the difficulty of changing our present banking system, so far as 
bank-notes are concerned, it does not extend to deposits. These be- 
long to the customers of the banks, residing for the most part in their 
vicinity, whose chief business with the banks is, through them, to 
apply their credits to the payment of their debts. This is mainly done 
by the proceeds of discounted notes, with an average of more than 
two months to run. The banks may propose to this large class, that 
the proceeds of discounts shall oidy be entered to their credit, pay- 
able in legal currency when the discounted paper matures, but receiv- 
able as now at all the banks for every debt payable there. This 
would ensure the deposits, for every legitimate purpose to which they 
are applicable, ample circulation; indeed, they would i)e no less cur- 
rent and acceptable than they are at present. They could, with equal 


effectiveness, fill every proper function to which they are adapted. 
' They would cease to be an object of overwhelming alarm whenever a 
demand for the precious metals occurred ; the banks could, therefore, 
in the face of such a demand, continue their discounts, and supply 
the usual facilities of payment, knowing that the constant progress 
of payments to them would absorb all these issues of credit before 
specie could be demanded for them. 

Some modification of this ))lan might certainly be arranged by men 
with clear views of the subject, and sufGcient experience in banking ; 
the efi'ect of which would be to place the city banks upon a safer basis 
than they have ever yet rested on, and to take away from them all pre- 
text for those sudden contractions of currency, which, whilst they 
are a scourge to industry and trade, make the banks themselves 
constant objects of reproach and detestation to a large class of the 

There is nothing in the law of legal tender to prevent this. The 
banks now agree to pay the proceeds of discounted notes on de- 
mand, and of course that law places them under the obligation of 
paying in gold or silver. But on the plan proposed, the banks would 
only agree to pay the proceeds at maturity of the discounted paper, 
with the additional stipulation that these credits Avould be receivable 
in all payments to the banks. Under such an arrangement the banks 
would, at all ordinary times, treat these deposits precisely as they do 
now ; but in case of a demand for specie for exportation, they could 
choose between contracting the currency and refusing to pay specie, 
except under the terms of their contract with their depositors.' 

The order in which we have presented the subjects of this volume 
seems to us the logical one ; but we have no doubt there are many 
who will be more inclined to look first at what is advanced on the 
subject of the credit system. This will naturally be the case with 
those who are already familiar with the subject. All such may com- 
mence their examination at the seventh chapter, turning to the pre- 
vious chapters only as they may find occasion, from the tenor of the 
matters discussed. 

1 A memorandum somewhat in tins form might be prefixed to each bank book: 
"The proceeds of all notes discounted for C. D. shall be placed to his credit, 

paj'able in gold or silver to the said C. D. at the maturity of the notes discounted; 

but subject, in whole or in part, to the check of C. D. in payment of any debt 

due to the bank, or for the purpose of transferring the same to any other bank 

or person." 




Exchange of commodities an incident of civilized life — The agencies hy 
which this exchange is effected must not he confounded with the exchange 
itseJf — Tlie fitness and nse of these agencies can be best determined by 
treating them as agencies more or less necessary to the main puiyose — 
Money, and money of account. 

In civilized life tlie industry of men is so largely developed 
and subdivided, as to involve an incessant exchange of commodi- 
ties and services. Civilized men require food and clothing of 
great variety in form, substance and preparation. Their dwell- 
ings and furniture are equally varied, and demand for their pro- 
duction an equally varied and subdivided industry. Intellectual, 
moral and religious wants and exigencies engage also a large force 
of subdivided labor. In this division of labor, there is one large 
class employed in producing and preparing food ; another in 
producing and preparing raiment ; another in building ; another 
in furnishing buildings ; and another in the labor of minister- 
ing to intellectual, civil, moral and religious wants : each ol 
these large divisions is arrain subdivided into lesser classes ; an(. 
these again by innumerable ramifications and divisions, unti' 
each person is reached in his separate individuality. The whole 
labor of society is thus apportioned among all its members in 
that way which the force of circumstances, and their intelligence, 
has dictated. In every community, much the larger number of 
persons are mere laborers, and have only their labor to give in 



exchange for such of the comforts of life as they may require. 
In every case, however, Avhether we regard classes or individuals, 
a continual series of exchanges is involved. The manufacturers 
of clothing must have food, shelter and furniture; the producers 
of food must have clothing, shelter and furniture ; the builders 
and furnishers of houses must have food and clothing ; those 
who minister to intellectual, civil, moral and religious wants, 
need all those things ; and the others, in like manner, require 
their services. Descending to every individual of each class, 
each person must give his labor, the product of his labor, or the 
products of the labor of others, in order, with that, to purchase 
what he requires. Every individual who earns a living, whether 
by his own labor or that of others, must exchange what he has 
for that which he wants. Even merchants, whose chief business 
it is to assist in this great interchange of commodities, exchange, 
by a continued process, their old stock of goods for a new one. 
The progress of industry and society is thus mainly character- 
ized by a constant scries of exchanges, in which every individual 
takes, directly or indirectly, an interested part. The manufac- 
turer who produces, by the labor of others, goods to the value 
of half a million yearly, exchanges these goods for the raw mate- 
rials and labor which enable him, in a succeeding year, to pro- 
duce a like amount. The professional man, the artist, or the 
laborer, exchange the exercise of their learning, skill or labor for 
what they want, consume or enjoy. 

The reader may develop more fully, and dwell upon these 
great features of industry and civilization, viewing them thus 
apart from the mere agencies by which this vast interchange is 
effected. It is not difficult to distinguish between the thing to 
be done, between the exchange thus accomplished, and the means 
by Avhich it is done. One large and important class of society 
is composed of the various agents engaged in the process of this 
interchange as their business or profession: merchants, with 
their attendants, bankers, brokers, clerks, transporters, and the 
laborers connected with them, constitute that class in every 
country. But other agencies are also prominent, such as ships, 
boats, canals, railways, warehouses, shops, books of account, and 


money. None of these are essential to the idea of an exchange. 
They are facilities, agencies, aids more or less desirable or indis- 
pensable, according to circumstances. Men who .ire near to each 
other may effect their exchanges without the aid of merchant, 
broker, ship or carriage. They may, by means of books of 
account and mutual charges and credits, wholly dispense with 
money. The intervention of money has, in no small degree, 
blinded men to the distinction between the exchanges of indus- 
trial life and the means or agencies by which they are accom- 
plished. This agency of money, although one of the most 
important, and doubtless one of the oldest and most expensive, 
is, however, very far from being an indispensable concomitant of 
an exchange of other commodities. The advantage of a common 
medium of real value, for which men could safely sell any com- 
modity they ha-d, and with it as readily purchase any they 
required, cannot easily be over-stated. Money, however, is not 
of the essence of an exchange, but only an agent to be employed 
when some advantage is to be gained by resorting to it, of faci- 
lity, security or otherwise. When a man sells an hundred bushels 
of wheat for $150, and with that money purchases three tons of 
iron, the transaction is an exchange of the wheat for the iron. 
The money employed is as much an agent, as the wagon used 
to transport the wheat and the iron. The exchange could have 
been made without it, but it was used because the parties found 
it more convenient or advantageous to do so. Even when 
money is employed, its real value as an equivalent is not an 
essential ingredient of the exchange. If, unknown to one or both 
parties, the money employed is counterfeit and worthless, the 
exchange of the wheat for the iron is none the less perfect and 
satisfactory to all parties ; and the counterfeit money may con- 
tinue to circulate, and be the medium or agent in many such 
exchanges, before it is discovered.^ All these exchanges will be 
as 23erfect as if effected with good money. This docs not prove 
that when money is used as equivalent, it should not be really 

'A counterfeit dollar may be the agent of a hundred exchanges, and only 
the value of the dollar Le lost by one person, in whose hands it is detected. 
A large quantity of false money is always in circulation. 


what it purports to be ; it only shows that exchanges of commo- 
dities may be effected without a real equivalent as a medium. 
Wheat, in the case above, pays for the iron ; the commodities 
exchanged arc the compensation, or payment, for each other. 
Thus, in the course of the year, a man exchanges the commodi- 
ties he makes, or has for sale, for those which he requires ; that 
is the main feature and object of his business. The professional 
man, and he who ministers to intellectual, civil, moral and reli- 
gious wants, exchanges his services for that which he consumes 
or requires. These multifarious exchanges are effected with or 
without money, or other ordinary agency of exchanges ; their 
beneficial results do not depend upon the manner in which they 
are effected. The exchange of the commodities being the object, 
every advantage, facility, security and economy would be resorted 
to in accomplishing that object. 

We thus insist upon keeping the object, and the means or 
agencies of effecting it, separate and distinct, as necessary to 
attaining clear views of the whole subject. As economy, facility 
and security are to be consulted in the thing to be done, it is 
necessary to keep the agencies, in all cases, in a subservient 
position, to be employed or not, to bo changed and modified or 
not, exactly as the main object dictates. 

Although our design, at present, is to treat of only one class 
of the agencies in effecting this great interchange of commodities 
and services, that which relates to commercial payments, in- 
cluding money and all its substitutes and modifications, we hold 
it to be specially important to a true comprehension of the sub- 
ject that the agent, whatever it maybe, should always be treated 
as subordinate to the object which is accomplished by it. Money, 
in all its forms and modifications, is to be employed or not, and 
to a greater or lesser amount, as circumstances, commercial skill 
and convenience require ; always considering, first, the ex- 
changes to be effected, and next, the means of effecting them. 
This is the channel which men pursue in the actual progress of 
business, and it is that which will conduct us, with proper dis- 
crimination, to the clearest views of the subject. 

But another distinction is equally to be marked and kept up 


in the mind by those who would attain to clear conceptions on 
the subject of money. We refer to the distinction between the 
precious metals, as a common equivalent, and coins from a public 
mint. It should be understood that it is not coinage which con- 
verts the precious metals into money. They would be used as 
such were there no coins, as is the case in China. Coinage does 
not give the precious met.ils a value which they had not before. 
It is not in the power of any nation to regulate the price of gold 
or silver ; this price must depend on circumstances which no 
nation can control. But though coinage is not that which gives 
their value or price to gold or silver, it is that Avhich prepares it 
properly for the purposes of a medium of exchange. In all the 
large payments in which gold is now employed, it would be used 
in the shape of bars, if not in that of coins. In the case of such 
payments, the mint needs only to prepare bars of fine gold or 
silver, of some uniform standard or quality, in order that, in 
paying, only the weight would have to be verified or ascertained. 
Gold and silver may then answer all the purposes of money, 
without being coined; for retail purposes, and small payments, 
the coinage affords a facility or convenience which is fully appre- 
ciated and admitted on all hands. But the coins, as such, do 
not constitute the money. The coins have a uniform shape, 
weight and quality, or standard, and in this consists their charac- 
ter. Prices are not expressed in coins ; that is, coins are not 
exhibited to express, signify or mark the price of any commo- 
dity. There is ;i mode of expressing prices or amounts, which 
is perfectly intelligible, in which coins arc not employed. 

The sums written in books of account, and upon the face of 
promissory notes and bills of exchange, are not indebted for their 
definite meaning to coins or coinage. Previous to our adoption of 
the dollar as the unit of our money of account, all prices were 
expressed, and books were kept, in pounds, shillings and pence, 
which had no corresponding coin ; so, also, were promissory 
notes and money securities expressed. These denominations 
were the money of account of that day, as the dollar is at pre- 
sent. It is well known, as we shall remark more fully hereafter, 
that these terms had a difierent significance in Massachusetts, 


New York and Pennsylvania. In each of these the unit had a 
different value or power, "vvhich was perfectly understood by the 
people in those different States ; although in neither was there, 
or bad there ever been, any coin corresponding with these various 
units. Men can carry in their minds a unit of value, as they 
can carry the idea of a foot, a yard, a mile, or an acre ; or of a 
pound, an ounce, or pennyweight. The physician writes his 
prescription in ounces, drachms and scruples, in matters requir- 
ing the utmost accuracy, and involving life or death. He has, 
of course, in liis mind the most definite and accurate idea of the 
quantities of the various ingredients to be compounded. But 
when the prescription comes to bo made up, the apothecary 
must apply the measure or the scales, or he cannot accurately 
realize the idea of the physician. It is the same with the money 
of account. It is so universally in use, that everybody is as 
familiar witli its meaning as the physician is with the apothe- 
caries' weight. All prices, and all amounts, are expressed in it; 
but when a payment is to be made in gold or silver, the scales 
must be applied, or coin produced, of which the value as ex- 
pressed in the money of account is known. 

Money of account will be the subject of special treatment in 
the following chapter. 


I 1. People emploijing gold and silver have terms in wJiicJi to express their 
value — Mint price and market price — Moneij of account a necessity. 

Before treating specially of the use of gold and silver as 
money, it will be of advantage to notice and understand the mode 
of expressing prices, keeping accounts, and stating amounts, 
■which has prevailed among all civilized people, and still prevails. 
People who have attained to the use of weights and" mea- 
sures, and arithmetic, employ a money of account, in which they 
state prices, sums and accounts. It is not a mechanical process 
by which other articles are compared by weight or bulk with gold 
or silver. It is an arithmetical process, by which, with the aid 
of some unit of value, taking its origin from a coin or special 
weight of gold or silver, the value of such coin or weight 
being fixed in the mind by constant use for a time, becomes a 
unit, readily borne in the mind, susceptible of being readily 
added, multiplied or divided by a combination with numerals. 
There is no nation far enough advanced to employ arithmetic 
which does not attach a specific value to both gold and silver, 
and which has not some terms in which to express that value. 
In the first stage of using the precious metals as a medium of 
exchange, they are given in exchange for commodities according 
to the estimate the parties to the exchange make at the time. 
With the progress of intelligence and arithmetic, people begin 
to place a general price on the precious metals, as well as upon 
other things. Every article which is the subject of exchange, 
becomes the subject of price, and by help of these prices the 
parties make their sales and payments. The price or value of 
gold or silver ceases to be what the party possessing them, at his 
caprice, puts upon them; their price becomes even better known, 


32 M N E Y F A C C XI N T . 

genci'ally, than that of any other articles ; and it is by this price 
that they are paid or delivered. This fact is obscured and hid- 
den from popular view by the custom of governments fixing a 
price upon the precious metals for the purposes of coinage. It 
is thus overlooked too often, that tl;e price at the mint is founded 
on the market price ; the people at large having no occasion to 
discuss the prices of gold and silver as they do of other articles, 
the impression prevails that the price of gold and silver is merely 
an affair of the mint and public authority. It is important, how- 
ever, and shouhl not be forgotten, that gold and silver are just 
as much the subject of price as other things, though obscured by 
coinage and legal enactments. This is familiarly known to 
dealers in coins and bullion, and to intelligent merchants and 
bankers ; though all such arc not equally aware how much 
they arc indebted to the money of account for the facility with 
which they make their varied computations, and varied transac- 
tions, without any aid from coins. 

The formation of a money of account among people capable 
of employing one, is not only an universal mental proclivity, it 
is a mercantile necessity. It would be literally impossible, in the 
present state of coinage, to continue for any considerable time 
to express prices and large sums by the number of coins which 
would be equivalent to the price or amount. The same effort of 
mind necessary to remember the value of a coin thus named 
to express a price or an amount, is sufficient to enable persons 
to carry the memory of that value in the mind, and use it with 
the same effect, abstractly, as if referring to the coin. Every 
coin or weight, of gold or silver, used for any long period as 
the means of expressing prices or amounts, becomes the unit of 
a money of account, and is used abstractly and arithmetically. 
It becomes quite as capable of expressing changes in the value 
of the precious metals, as of any other articles ; for it remains 
fixed at the value at which it passed into the money of account. 
It is then employed in expressing the prices of thousands of 
articles, and for stating all possible sums in the way of compu- 
tations, accounts and financial adjustments. Being so variously 
and constantly employed by such multitudes, it attains perma- 

M N E Y F A C C U N T . 66 

nency ; being, like the mast of a ship, heW by stays and checks 
innumerable on every side. 

The value of the unit, or beginning point, being once firmly 
fixed in men's minds by constant use, remains there wholly inde- 
pendent of subsequent changes of price which may afiect the 
specific article from which it took its rise. Thus, if it sprung 
from a coin, or a certain quantity of gold or silver, it becomes 
afterwards so independent of these as to be quite capable of ex- 
pressing the changing prices of that or any other coin. It is, 
then, a matter of fact that all commercial people keep their 
accounts, compute money, and express prices, by the use of a 
money of account. The naming a price with them is not naming 
a coin, or any specific quantity of gold or silver ; but it is the 
employment of the denominations of the money of account, which 
all understand to express a price. There is scarcely any mental 
operation more generally and constantly in exercise, than that 
which is used to fix and express prices. All classes of men have 
more or less occasion to be familiar with it. 
■v^ The distinction between money and money of account is not 
apprehended and kept before the mind with equal facility, by all 
persons, on the first attempt. If the subject is new to the party 
making the effort, it will require some earnest attention and 
patient discrimination. Moliere, in one of his comedies, intro- 
duces a character who, entering upon the education suitable for 
a gentleman late in life, finds, to his great surprise and pleasure, 
that he had been speaking prose all his life without a master. 
So many have to learn that they have been long employing a 
money of account, without being aware of the acquisition they 
had made. Even in those times and countries where money cir- 
culated by weight, or in uncoined pieces, there must have been 
some mode of expressing the value of silver by weight, or of 
the "pieces" which were cut to a particular weight, and passed 
as " pieces of silver." AVhether bar, piece or shekel, the parties 
dealing had some way of expressing the value of the precious 
metals. A people who have arrived at such a degree of civiliza- 
tion as to receive and deliver gold and silver by weight, and to 
employ arithmetic in the computations connected with such trans- 

34 JI X K Y F A C C U N T . 

actions, must be supposed, as "\ve have said, to have some idea 
of the value of the various quantities of gold or silver -which the 
scales and weif^hts might specify. If a piece of gold were cut 
from a bar, and found to be of a particular weight, they attached 
a particular value to so much gold. They did not merely say a 
shekel gold is worth a shekel of gold, but they attached a price 
to so much gold as weighed a shekel ; and they had some terms 
in which to express it. If one said to another, I will give 3'ou a 
shekel of silver for an article, the party addressed had two men- 
tal processes to go through before he could understand the oifer ; 
he had to recall to mind how much gold was the weight of a 
shekel, and next, what was the value of that much gold. One 
of these processes involved an abstract quantity, and the other 
an abstract value. So easily does the mind master these abstrac- 
tions, that men retain the ideas of weights and values in their 
minds as readily as they do the power or significance of numbers. 
Values and quantities have, from the very dawn of civilization, 
been as readily retained as any of the processes of arithmetic, 
and they are now as familiar as the multiplication table. 

If M'e suppose the pieces of silver mentioned in the New Tes- 
tament were of unequal and undetei'mined weight, we may imagine 
them to have been offered for what they might happen to be 
worth ; as if the party offering should say, here are thirty pieces 
of silver : you see them : will you take them for the service we 
ask ? In such an offer, no money of account would be employed. 
It would be an offer of a quantity of silver to be judged of by 
sight. But if the thirty pieces of silver were coins, or quantities 
known and familiar by constant use, their value or price would 
occur to the mind the moment they were recognized ; and in 
every civilized country there is, and always has been, a mode of 
expressing and writing down the value, which is thus readily per- 
ceived and understood ; and this is the money of account. If 
one person say to another, I will give you these 100 Spanish 
dollars now before me for your horse, money of account is not 
necessarily involved; it is the specific offer of the 100 silver 
coins for the horse. Yet, if the party to whom the offer is made 
makes acy valuation of the 100 Spanish dollars, he can only do 


it by means of a money of account. If the offer is merely of 100 
dollars for the horse, the ijalue or price is expressed in money 
of account ; the payment is to be arranged afterwards, either 
by a promissory note, or bank-notes, or five $20 gold pieces, or 
twenty $5 gold pieces, or 200 half dollars. So if, in the United 
States, one person says to another, '• I will give you these 50 
British sovereigns, or these 50 French Napoleons, or these 100 
five franc pieces, for any commodity," it would be understood 
to be the offer of a specific article : it' would be regarded, not as 
an offer of money, but of the particular coins mentioned, whether 
•worth more or less. The party accepting such an offer would 
accept the thing offered. But an offer of 100 dollars, only im- 
plies that the payment is to be satisfactory, and if not, the person 
to whom payment is to be made has the power of exacting it in 
such coins us the laws have made a legal tender. 

§ 2. Idea of value carried in the mind as the idea of weights, measures of 
length and capaciijf — The use of a money is much greater than of money 
— Often confused in language — Kelly's Cambist quoted — Varieties of 
moneys of account — British decimal system. 

The idea of a certain value, which of course had its orinfin 
in an actual comparison, or perfect familiarity, with some 
material article, is as easy to fix and carry in the mind as the 
idea of weight or quantity. As physicians carry in their minds, 
with perfect certainty and facility, the idea of the weights and 
quantities involved in ounces, scruples and drachms, and pre- 
scribe compounds of medicines requiring the utmost nicety ;ind 
caution, by their knowledge of these quantities, Avithout scales or 
weights : so it is with pounds, tons, bushels, yards, feet and 
inches ; these terms carry to the minds of those most familiar 
with them, perfectly definite ideas, independent of any actual 
use of weights and measures. They use them constantly, well 
understanding each other in reference to quantities, not only 
without the weights and measures, but without any access to 
them. So men speak of values and prices, perfectly comprehend- 
ing (ach other, although they may have no means, nor any occa- 
sion for payment. 

36 M N E Y F A C C U N T . 

It is as easy to carry tlio idea of the value expressed by a 
pound sterling, a franc, or a dollar, «! the mind, as the quantity 
expressed by a ton, a pound, a bushel, or a foot. The truth is, 
that there is so much occasion to name prices, or express values, 
that almost every individual of a community, however insignifi- 
cant he may be, becomes perfectly familiar with the money of 
account. It is more used than any reference to Aveights and 
measures. After all, none of these ideas cost the mind more 
effort than that of carrying the value or power of the Arabic 
numerals. It is no greater effort of mind to understand what 
is meant by ninety-nine bushels, than to understand what is 
intended by ninety-nine men. Quantities and values can be 
made the subject of conversation, of estimate, of contracts, of 
statistical tables, and of innumerable modes of expression, Avlthout 
any production of the article spoken of, or of the weights, scales, 
measures or coins by which quantities are actually defined, or 
payments actually made. It is well it is so, for it would be very 
inconvenient to produce a pound weight, or a dollar in coin, to 
explain our meaning when a pound or dollar is mentioned, not to 
speak of tons and miles. 

The value of the unit of a money of account is, in fact, so fas- 
tened on men's minds, that it may be said there is nothing they 
know better, and nothing, so far as their mental habits are con- 
cerned, which is so little likely to change. If no attack were 
made upon this mental habit in Great Britain, the people of that 
country would continue to keep accounts, compute and express 
prices, in pounds, shillings and pence for ages to come, even if 
no sovereigns, or pounds or shillings, were knovvn among their 
coins. Though Hooded with all the coins of the world, they 
would promptly and readily express the value of every coin 
in pounds, shillings and pence. It is the money of account 
of England which at this moment performs the great function of 
expressing all prices there, whether of stocks, or coins, or bullion, 
or bank-notes, or merchandize. It is not the gold sovereign, 
nor the silver shilling, nor the copper penny, whicli is used to 
measure the values of these innumerable things ; it is the scale 
of the money of account existing in all men's minds, and appli- 

M X E Y F A C C U N T . 37 

cable to every article alike, which is employed to express every 
possible price and variation of price. 

So, in the United States, our money of account, the dollar and 
its cents, or hundred equal parts, is used to express every possi- 
ble price, and change of price, of every article. If bullion rises 
in price, silver dollars may be quoted at $1.05, or $1.10 ; or, if 
it falls in value, they may be quoted at .97, .98 or .99 ; and 
depreciated bank-notes are readily valued at any part of a dol- 
lar, from one cent to ninety-nine. When English sovereigns or 
shillings are paid aAvay here, they are not paid as pounds or 
shillings, but are valued in our money of account at whatever 
their price for the time being may be. 

In every country, when all the transactions by book accounts, 
all the purchases upon credit and for paper-money, all the com- 
putations by money, and all the conversation about prices are 
taken into account, it will be found that all these taken together 
immeasurably exceed all the transactions in actual money of gold 
or silver. It is by no means surprising, then, that the mental 
operations by which all the vast transactions by books of account, 
all sales on credit or for bank-notes, all this continual fixing and 
naming of prices, is carried on, should become the law of reckon- 
ing, to Avhich every description of money itself should in the end 
become subject. Such is indeed the fact, as the actual state of 
things in every country proves, and this has always been known 
to intelligent accountants and cambists. It has been prominent 
in the guide-books of merchants and bankers, but has not been 
so familiar to statesmen, political economists, and theoretical 
writers on money.^ But even where the special functions of 

• The want of clear views of the nature and functions of money of account 
is strikingly exhibited in the following passage from a work of the late 
Leon Faucher: — "The effective money in the middle ages varying con- 
stantly, and being at the mercy of every prince, to be altered at his will, 
they devised a money of account, a sort of abstract or fictitious unit, which 
might remain relatively invariable in the midst of monetary fluctuations 
caused by the unskilfulness or the bad faith of governments, and the cus- 
tom is preserved in some States to this day." — Sin- L' Or et Sur L' Argent, 
page 5. 

This is written by one who was recently, and at the time of his de- 



money of account have been understood, there has not been suffi- 
cient attention given to exhibit the actual relations between 
money of account and money of gold and silver; and yet neither 
can be fully understood until both are understood. We fre- 
quently find them utterly confounded, and the attributes of each 
referred to the other. There is, however, no difficulty in keep- 
ing their offices and functions separate, Avhen the distinction is 
kept in view. 

The value of an article, or of a fixed quantity of goods, is ex- 
pressed instantaneously in money of account. The merchant who 
says his cloth is worth a dollar a yard, is understood without 
producing either a dollar or a yard-stick. When a sale actually 
takes place, and payment is to be made, then gold or silver, 
and weights or measures, become necessary. If the money laid 
down is in coins corresponding in denominations with the money 
of account, it appears to favor the idea that the article sold was 
measured by the coins. But if payment is made in the precious 
metals by weight, or in coins not corresponding Avith the money 
of account, then the agency of the money of account is called in 
to express the price of the bullion by weight, or of each coin : 
so that the transaction is completed by the employment of money 
of account in fixing the price of the merchandize, in adding the 
sum of various articles and their prices together, to ascertain the 
whole amount of the sale, and in fixing or expressing the value 
of every coin offijrcd in payment. In many large establishments 
for the sale of merchandize, salesmen are employed in making 
sales of vast quantities of goods, with the prices of which, in all 
quantities and varieties, they are perfectly familiar, actually 
spending the most of their time in naming and discussing 
them ; but few of these salesmen, however adroit, can tell the 

cease, a minister of finance, and certainly a man of ability. He was 
employinf; of account of France every day, he was familiar with 
it, he would have been utterly at a loss without it, yet he accounted it as a 
barbarous relic of the dark ages. It is like an atmosphere to finance; it is 
the very language of financiers; they can neither think nor communicate 
their ideas without it; yet its agency and use is alleged to have belonged 
to the middle ages ! 

M N E Y F A C C U N T , , 39 

price of gold or silver by the pound, ounce or pennyweight, or 
the value of any coin of those metals, except a few domestic 
coins. When large payments, therefore, arc made in bullion or 
mixed coins, the receiving these is referred to another clerk, who 
knows both their quality and price. 

Any one who will take the trouble to recall to his mind the 
course of such transactions will perceive that money of gold or 
silver is not employed as a measure, even when it is used in pay- 
ment, which is very rare in large transactions. The precious 
metals as frequently require measurement or estimation as the 
articles for which they are given in payment. It is no more 
difficult to express the true value of coins or bullion than of 
any other article of value. Their chief advantage lies in their 
safety and convenience as a medium of exchange — an imperish- 
able equivalent in retail dealing, so important to every condition 
and chiss of men — and not in the fact that they can be or are 
used as actual measures or standards. They are standards of 
coinage, not of price or value. The term standard of value can- 
not be too strongly condemned. As a matter of fact, gold and 
silver are employed only as standards of payment in the current 
transactions of commerce. The invariable formation of a money 
of account, which, while the precious metals, or some substitute, 
remain the medium of exchange, or the instrument of payment, 
becomes the medium of comparison, the expression of equiva- 
lents, the language of prices, obviates equally all need of a mea- 
sure or standard of value for any article which has any price. 
By aid of this mode of expressing prices, the largest transactions 
can be instantly accomplished, and notes or checks given in 
payment, without the aid or presence of coins or bullion, or any 
thought of or reference to them, and without the knowledge 
necessary to make the payment in coins or bullion.' 

' We refer the reader, for some illustrations of this subject, to " Kelly's 
Cambist," ' a work of admitted authority, founded upon information ob- 
tained with great labor and expense, in which the author was aided by the 

' The Universal Cambist and Commercial Instructor, bcin<^ a AiU and accurate Trea- 
tise on the Exchanges, Coins, Weights and Measures of all dealing Nations. By P, 
Kelly, LL.D. 2 vols. 4to. 

40 .AI N E Y F A C C U N T . 

The moneys of account of Prance, England, and the United 
States are as completely established, and their functions as corn- 

British government. Although, on the subject for which we refer to this 
useful book, we find much confusion of terms, and great need of more dis- 
crimination, yet there are facts enough to guide the reader to very certain 
conclusions, and clear views. He distinguishes money into real and imagi- 
nary ; the real are coins, bank-notes, &c. ; the imaginary, "also called 
ideal moneys, are not represented by any coin, but are used in keeping 
accounts. They are understood to have had their foundation in real coins 
or weights, which were the original units adopted as the measures of value, 
and which have been continued under the same denominations, notwith- 
standing the changes that may have taken place in their intrinsic value." — 
"Although moneys of account be not represented by real coins, yet their 
intrinsic value may be determined by their known relation or proportion to 
certain coins." — "Moneys of account may be considered with respect to 
coins as weights and measures, with respect to goods ; or as a mathematical 
scale, with respect to maps, lines, or other geometrical figures. Thus they 
serve as standards of the value both of merchandize and the precious metals 
themselves. It should, however, be remarked, that moneys of account, 
though they are uniform as a scale of divisions and proportions, yet they 
fluctuate in their intrinsic value with the fluctuation of the coins which they 
measure or represent." The terms standard of value, measures of value, 
intrinsic value, and representation, as applied to moneys of account, is open 
to strong objection ; but the meaning of the author, on the whole, is suffi- 
ciently obvious. 

Moneys of account have "their foundation in real coins or weights;" and 
they often remain unchanged, although the coin or weight on which they 
are founded may have undergone many changes. When once well esta- 
blished, they become capable of expressing the prices of both goods and the 
precious metals. By their intrinsic value he means the value of the unit 
represented in the precious metals. Moneys of account do change with the 
gradual changes in the value of coins, if the denominations of the coins are 
the same with those of the money of account ; because the mass of the 
people in whose minds the money of account is fixed, foil to distinguish 
between them when both are called by the same names. But when the money 
of account does not correspond with any coin, it does not fluctuate, nor even 
tend to fluctuate, with the precious metals or coins ; but remains steady, 
and quite capable of marking and expressing the variations in the value of 
coins and bullion. The "Cambist"' furnishes "a Table of moneys of 
account," of which it is remarked, " that some of these are real coins, the 
value of which may be computed from the mint regulations, or from assays; 
but when they are imaginary moneys, which is generally the case, their 

' Vol. II., page 148. Edition of 1835. 


pletely performed, as elsewhere ; although the franc, the sove- 
reign or pound, and the dollar coins, agree with the unit of the 
money of account. To understand the system of money in any 
country, the first requisite is to know in what terms or denomi- 
nations accounts are kept, prices fixed and expressed, and all the 
dealings of the people carried on ; this, whatever it may be, and 
whether any coins correspond or not, is the money of account 
of that country. The chief difficulty in understanding the 
subject of moneys of account and coinage, is the blending them 
or not keeping them wholly apart as distinct things. It will be 
found, as a matter of fact, that in every country. the money of 
account is used to express the value of coins, and that coins do 
not serve essentially to give effect to the money of account. 
Where there is a coin corresponding with the unit of the money 
of account, it is true it presents the value which the other 
expresses. It is proper, in England, to say that the coin called 
a sovereign is worth a pound sterling; but it is not proper to 
say that a pound sterling is worth a sovereign.^ The pound is 
the unit of the British money of account, and it is employed not 
only to express the value of the sovereign, but the value or price 
of every other coin or quantity of gold over that amount. There 
is a money of account in Great Britain, based on the shilling, 
which is seldom employed beyond the value of three or four 
pounds ; prices are frequently expressed in shillings, from one 
to sixty or eighty, but seldom beyond that amount, though there 

value must be found by their established proportion to real coins." This 
table sets forth over one hundred and twenty different moneys of account, 
and exhibits the fact that several countries have more than one, and some 
as many as five; a fact vidiich is a proof that past monetary revdiutions are 
not only productive of misfortune and damage at the time, but of enduring 
evil and inconvenience afterwards. A v^-ant of precision in the language 
of the author, on the subject of moneys of account, is apparent tlirough the 
whole work; and yet a little attention only is requisite to comprehend his 
statements. It is only needful, for this purpose, to remember that the 
money of account is not only as oiierative, but as necessary, to commercial 
dealing, where the coins correspond with it, as where they do not. 

' The sovereign is a recent coin, and when first issued was made to con- 
form to the minutest fraction in the pound of the money of account. See 
infra, Chapter 4. 


is no difficulty in understanding those Avho express prices in 
shillings to any amount not too large to be converted, mentally 
and instantly, into pounds. This double money of account is an 
argument, in England, for the adoption of the decimal system, 
which furnishes a relation between the unit of the money of 
account and its parts, much more easily carried in the mind than 
that used in the British system of money. It would be much 
easier to apprehend the value of any part of a pound expressed 
in hundredths, than in shillings and pence; and this perfect faci- 
lity of perceiving the relation of all the parts of the unit to the 
unit itself, saves the formation and use of a subsidiary money 
of account, like that of the shilling. In the United States we 
express many prices in cents, but we always perceive the rela- 
tion of the number of cents to the dollar ; and, in fact, the com- 
mon mode of writing cents is fractionally as ~{^^J%, instead of 20 
cents. ^ 

' The confusion which reigns in the minds of many men, as to the exist- 
ence and functions of a money of account, is strikingly illustrated in the 
discussions now pending in England on the adoption of a decimal system. 
While many understand its true idea and use, and intelligently explain the 
difficulties and nature of the proposed change ; others, for want of this cor- 
rect conception, carry confusion into the whole discussion by speaking only 
of coinage. Some of the reformers absurdly proposed changing the unit of 
their money of account, the pound sterling. A greater mischief can scarcely 
be conceived ; certainly a more needless evil could not be inflicted on the 
country. Pounds are already counted decimally ; it is only the parts or frac- 
tions of a pound to which the reform applies. It is, in fact, the shilling money 
of account which is to be changed. The coinage part of the question is com- 
paratively of little importance. To change the money of account of a nation 
like Great Britain is indeed a serious affair, and demands the utmost cau- 
tion and investigation. The best mode of effecting this change, as it strikes 
us, is that which has in part received the approval of Parliament, the British 
public, and the greater number of those who have written on the subject.' 
This preserves the pound unit of account, without displacing the shilling 
as a coin. It involves the lowering the copper coinage four per cent., which, 
in practice, would not be found to work injuriously. The mint would take 
the old copper coins at a premium of four per cent., payable in the new 
issue. The dealers would give as much for the old coins as ever they did, 

* The pound and mII sj-stem, in which 1000 mils make a pound. The copper coin- 
age is lowered four per cent., which makes mils and farthings equivalents. 


When it was recently proposed, in England, to adopt a deci- 
mal system, dispensing with the pound as the unit of the money 

because they could be reimbursed by the change into new coinage. The 
British system virtually includes four moneys of account ; one with the 
pound unit already counted decimally; one with tlie shilling unit; one 
with the penny unit ; and another with the farthing. The change proposed 
is to dispense with the three latter, and have them absorbed in the first. In 
fact, it will be found not to be a question of coinage, except the copper 
money, but a question of the mental habits of the people. 

In spite of all that can be done, the people of Great Britain will reckon 
by shillings for at least a half century to come. This, however, will 
not disturb the adoption, nor prevent the success, of the proposed money 
of account. It is now seventy years since the decimal system of this 
country was legally adopted ; and, during all that time, the Spanish coins, 
halves, quarters, eighths and sixteenths of a dollar, have circulated con- 
currently with our decimal coinage. They have, doubtless, obstructed 
in some degree the complete adoption of the decimal money of account in 
the expression of prices and sums under one dollar. But for the last forty 
years prices under one dollar have been expressed, if not exclusively in 
cents, at least Avith equal facility, and to a much greater extent, in cents 
than in the terms of the Spanish coin. Both are yet employed, and both 
generally understood. The term shilling, in the State of New York, maintains 
its place fully, as it corresponds with the Spanish eighth ; but the eleven- 
penny-bit of Pennsylvania, and the nine-pence of Massachusetts and Vir- 
ginia, representing the same amount, or 12J cents of our decimal system, 
have nearly disappeared. These Spanish coins, which for fifty years greatly 
outnumbered our decimal coinage, were readily valued in our money of 
account, and the gain over the old system has been immense. The diflSculty, 
in England, is really less than we have had to encounter. The money of 
account founded upon the pound unit can be introduced in far less time 
than it required to introduce the system of the United States, because the 
pound unit is retained. Here it is given up for the dollar. There the shil- 
ling may, and should be, retained as a coin ; and will not only prevent con- 
fusion in the minds of those who cannot at first understand the nature or 
the reason of the change, but greatly aid and facilitate the progress of the 
measure. The shilling bears the same relation to the pound that a half 
dime does to a dollar in the United States: or, one-twentieth of a pound. 
While the people are learning the now system, the old coins which form a 
part of it will enable them to avail themselves of the old system, until they 
become equally familiar with the new. 

The merchants, bankers, brokers, and dealers in bullion, can exercise the 
most eficctive influence in introducing the new money of account. Let 
prices be named both ways ; let bills bo made out with the sums expressed 

44 lyi >: E Y F A C C U N T . 

of account, Professor Aircy, avIio -was examined by the Parlia- 
mentary committee on the subject, said : — "I can scarcely con- 

both ways, for which the stationery should be prepared, and paper properly 
ruled. This part of the business expert tradesmen, bankers and clerks will 
master in a fortnight. Their customers, or most of them, must, however, 
bo dealt with in pounds, shillings and pence for many years. For in this 
money of account will the greater number continue to think, long after the 
account-books of the government, of the banks, and the principal merchants, 
are kept by the new system. The books of the Bank of England might be 
all safely opened upon the new system within a year, or less, from the time 
the measure was resolved upon ; and so of all other large establishments. 
But cashiers, tellers, and others in like positions, would be obliged to be 
equally familiar with both systems, and to be able to translate sums instan- 
taneously from one to the other. Great advantage would be gained very 
soon ; but the entire and universal adoption of the new money of account 
could not have place for from twenty to fifty years. The inconveniences 
of this gradual progress would not be equal, as a whole, to those of the pre- 
sent system. It would, in fact, be a measure completely successful for those 
persons and institutions who most require and need the change. 

It is a happy circumstance for the success of this measure, that so little 
change in the coinage is required. None would, indeed, be far better than 
too much. It would be highly useful, it seems to us, to have the new pieces 
of the same value as the shilling and sixpence, having the same impression 
coined, with the addition in figures of their value in the new money of 
account. Every shilling and sixpence would be a lesson, and an aid to the 
memory. With this addition there would be less objection to the old crowns 
and half crowns, than to any possible new coins. 

Of the other plans of introducing the decimal system of money into Great 
Britain which have been pi-oposed, none appear to us so safe and desirable 
as the one already approved by the House of Commons. Many of them 
betray a total misconception of the whole subject, and deserve not a mo- 
ment's consideration. The attempt at a universal system of coinage enter- 
tained by some is only a little loss visionary than an universal language. 
Changing coins does not change moneys of account. Governments may order 
new coins, but the people will not always reckon by them. The best devised 
system of universal coinage could not, with all the power of modern Euro- 
pean governments, be forced upon the people in a century, if at all. As 
with coins, so with weights and measures. They cannot be changed upon 
the ground of general conformity, because the inconvenience of the change 
will endure for a whole generation of those who are asked to make it. The 
weights and measures in general use are so fixed, as to their meaning, in 
the minds of the people, that any proposal of change alarms them, or, if it 
causes no alarm, it will not be received. The French system of weights and 

M N E Y F A C C r N T . 45 

ceive it possible, except by the most violent and offensive mea- 
sures, to change the principal money of account from its present 
value of the pound sterling. Every estimation of large, and 
even of very moderate sums, is formed by the pound. I do not 
attach great importance to such things as the national debt, or 
the rental of the country ; but the price and rental of private 
estates, the salaries of officers, the annual wages of servants — 
in larger matters, the expense of constructing a railway, or sail- 
ing a ship — all are estimated by pounds. An alteration of the 
value of the pound would unhinge every estimate and contract 
in England. I' say, advisedly, every contract for the shilling is 
inseparably connected with the pound ; and every contract which 
is not ostensibly made by the pound, is made by the shilling."^ 

It is remarked by Dr. Bowring, in his instructive little work 
on the decimal system, that, " To the pound sterling the most 
distinct and definite ideas attach, whether on large or small 
amounts. Mention a pound, five pounds, ten pounds, fifty 
pounds, a hundred pounds, a thousand pounds, ten thousand 
pounds, and your meaning is comprehended by everybody."^ 

Every one is acquainted with a large class of prices, and 
knows a great number of articles which can be purchased for a 
pound, for five or for ten pounds ; the Avages of a man for a year, 
the price of a horse, the rent of a farm, the cost of a cottage or 
first-class dwelling, the value of a ship, the cost of a steam 
engine : all such valuations are carried in the mind, and are 

measures, so much boasted, has made its way on]y very gradually in France. 
It is even yet but partially adopted, and is now admitted to have defects 
which should be corrected before it extends further. It could not have 
passed so extensively into use, if it had not been originated at a time 
when change was the order of the day ; when all old things, and old insti- 
tutions, were under the process of being exploded, reformed or modified. 

The French system could not be forced upon Germany, nor Great Britain, 
nor upon the United States. Those who are laboring for the desirable object 
of an universal system of coins, and weights and measures, must fail of suc- 
cess, because the complications and difficulties to be overcome arc equally 
beyond the reach of science, authority and individual enterprise. 

' Minutes of P^vidence on Deciznal System, page 30. Bowring's Deci- 
mal System. 

* The Decimal System, by Sir -John Bowring, page 104. 

46 M N E Y F A C C U N T . 

expressed in money of account. In naming such prices, or 
expressing such estimates, those ^vho use them have no reference 
to any quantity of gokl or silver ; for, among those who thus 
freely speak of prices, few could tell, or without help ascertain, 
the value of a quantity of the precious metals corresponding to 
any large sum named by them. If the owner of a cottage, valued 
by him at a thousand pounds, were to have gold to that amount 
laid before him in payment, he would be utterly at a loss as to 
its real value. If the amount were in sovereigns, he could count 
them ; and as each sovereign bears the mint certificate that it 
contains gold to the value of a pound, he would take the 1000 
sovereigns for ,£1000, not on his own knowledge, but on the faith 
of the public coinage. The estimate of the article is made in 
pounds, and the price is perfectly understood by both buyer and 
seller, whether payment is made at the time or not. If made in 
gold bullion, it would be carried to a dealer in bullion to be 
weighed and valued ; if in sovereigns, they would bo received, 
not because the receiver knew either the genuineness of the gold, 
or that the coins contained the requisite quantity of gold to be 
equal to a pound, but they would be received solely on the faith 
of the impression on the coin indicating both quantity and 

§ 3. British money of account — Tlie pound sierJing — Guinea — Sir Isaac 
Kewton — Earl Liverpool — System o/" 1816 — Wlnj fractions in u^eight 
of coins — Coins are adjusted to money of account — ''What is a pcnmdf" 
— Fixed price of j^recious metals — Influx of gold — Depreciation post- 
poned, but yet to come — Remedy — Suspension of payments in Great 
Britain, in 1797. 

In further illustration of the subject, we shall notice specially 
some of the more noted moneys of account, and such as may 
appear best fitted to explain their nature and functions. 
The British money of account derives its terms from the fact 
that English coinage was founded upon the pound of silver, out 
of which was coined twenty shillings. Since that time, the money 
of account for expressing large sums has been the pound unit, 
for small sums, the shilling ; but owing to various abuses of the 
coinage, and other facts which we cannot recount here, the pound 

M N E Y F A C C U N T . 47 

of silvei' which at first was coined into twenty, is now coined into 
sixty -six shillings. The money of account of England has passed 
through just so many changes as have concurred to bring down 
the pound of the former money of account, expressing the equiva- 
lent of a pound of silver, to the pound of the present money of 
account, which is not equivalent to the third of a pound of silver. 
At this point it has remained unchanged for more than a cen- 
tury. From the reign of Charles II. until the year 181 G, when 
the sovereigns were coined, the pound sterling had no corre- 
sponding piece in the coinage. The guinea was intended as a 
coin to be of the value of a pound, but not having been correctly 
adjusted, its greater value was at once shown by its price ex- 
pressed in the money of account ; and the price of gold fluc- 
tuating, it varied correspondingly in price until the year 1717, 
when it was fixed by Sir Isaac Newton at twenty-one shillings, 
at which rate it has remained under regulation of the mint. 

In 1816, under the advice of the Earl of Liverpool, and in 
pursuance of his elaborate report,^ gold was adopted as the legal 
tender of Great Britain, and a coinage of sovereigns ordered. 
In making this important change, if it had been regarded merely 
as a matter of coinage, it can hardly be conceived that the weight 
for this new coin would have been fixed at five pennyweights, 
three grains and ^H of a grain. We ask, for the sake of those 
to whom the idea of a money of account is not familiar, why this 
special quantity of gold, involving so minute a fraction, was to 
constitute the sovereign, which was to be thereafter the most 
important coin of Great Britain ? Coins are easily made of any 

' Letter to the Kinj; on the coinage of tl)e llealm. 4to, London, 18U5. 
This very elaborate report, in which there is much to admire and to learn, 
exhibits, however, that confusion of ideas and expression which characterize 
all writings on money by authors who know nothing of, or who disregard the 
money of account. The eighth, ninth and tenth pages of this celebrated 
document furnish abundant proof of the difficulties encountered by those 
who endeavor so to define money in coins as to include all the functions of 
a money of account. The introduction of the money of account removes all 
the difficulties so strongly felt by the Earl of Liverpool. 

Notes of the Bank of England were then, and have been ever since, a 
legal tender in England. 

48 M N E Y F A C C U X T . 

weight, and they tire readily changed. Why did the British 
government determine to coin 46'il sovereigns from a pound of 
gold ? Why admit such fractions into their coinage ? Why not 
make tlie coins even parts of a pound, so that every one might 
knoAv the quantity of gold in his coins, as well as the value ? 
The reason was, that the British government having resolved 
that the pound sterling should be represented in the coinage, 
there could be no discretion as to the quantity of gold in the 
sovereign, for the value of a pound sterling was well known to 
all the people, and had remained unchanged for more than a 
century, and, but for unwise legislation, or want of legislative 
care, would remain far more steady, and freer from fluctuations, 
than gold or silver. The sovereign Avas then necessarily made 
to weigh 5 dwts. S^?,] grains, that it might represent the British 
unit of money of account ; that is, it was made the equivalent 
of a value known and fixed before.^ The British government 
did not create or enact the money of account ; it grew up with 
the progress of the nation, and although it had undergone muta- 
tions under abusive regulations, yet it remained unchanged from 

' The Franc of France Aveiglis (silver) 76.5 grains. 

Napoleon, " " (gold) 99.2 

Sovereign, England, " " 122.5 

Shilling, " " (silver) 80. 5 " 

Dollar, U. States, " " 412.5 

Eagle, " " (gold) 258. 

The coins here mentioned, and all others, are accurately adjusted in weight 
to the unit of the respective moneys of account they represent. The money 
of account is not changed to suit the coins, but the latter to represent the 
former. Where this adjustment is not correct, as was the case with our 
gold coins before 1834, the coins will not circulate. If coins are undervalued 
in the money of account, they will be melted or exported ; if overvalued, 
they will bo refused. The adjustment of the coin to the unit of the money, 
or the part it purports to represent, must be correct to the minutest frac- 
tion. This is because coins are made a legal tender. Bars of gold or 
silver of any size may circulate by weight at the market price. Coinage, 
with a law making the coins a legal tender, is fixing the price by law of the 
precious metals, and is open to serious objections when applied to larger 
sums. All that a government can do, in the way of fixing this price, is tc 
force creditors to take them at the price fixed. 

M N E Y F A C C U N T . 49 

the time it ceased to be improperly tampered with and abused. 
This the government, in the measure of 1816, wisely chose to 

It was a prominent feature of this measure, that it fixed the 
price of gold. The Britisli pound would have remained steady, 
and capable of expressing, by its fractions, every variation in the 
price of gold ; but the emission of a coin as the equivalent of a 
pound made it difficult for any but dealers in bullion to tell when 
gold changed in value. Two things, essentially distinct, were 
thus blended in the minds of the mass of the people ; dealers in 
bullion alone could detect changes in the value of gold, but 
the people could not distinguish between the pound of the money 
of account and the sovereign.^ This difficulty was increased, 

' " If Ave have attained a clear conception of the functions of the money 
of account, we are able to answer the question, wuat is a pound? by sim- 
ply replying, that it is the unit of the money of account of Great Britain. 
The value of that unit, or its power, everybody in that country knows. The 
statute which fixes the mint price of gold in England is an application of 
the money of account by Parliament to the article of gold ; and it really no 
more changes the nature of the money of account, when applied by law to 
express the value of an ounce of gold, than if a merchant had so used it. 
The price of an ounce of gold is declared, by statute, to be permanently at 
X3 175. lOjf?., and the Bank of England is required to purchase it from all 
who oifer, at X3 17.s'. 9cZ. Although the effect of thus declaring permanently 
the value of gold may confuse the minds of many, and lead them to infer 
that the ounce of gold is the £3 17s. lOjcZ., it does not remain the less true 
that it is a simple expression of value, and that the ounce of gold and the 
£3 175. lOld. are not convertible terms, because the latter expresses the 
value of the former. It may be asked, what did £3 175. lOld. mean before 
it was used by the statute to denote the value of an ounce of gold? Did 
not people understand, by £3 175. 10^ J., the same thing after its use in the 
statute as before? And how many thousands reckon familiarly in pounds, 
shillings, and pence, who know nothing about the mint price of gold. 

" If a British statute, or proclamation, declares the gold Napoleon of 
Fi-ance to be worth 155. lO^cZ., that is not merely declaring the Napoleon to 
be worth its weight iu gold, it is the expression of the value in English 
money of account; it is not the same as if it had declared that tlio Napo- 
leon, weighing ninety-nine grains and tAvo-tenths, is equal in value to 
ninety-nine grains and two-tenths of gold. Such a declaration as this would 
only be intelligible to those familiar with the process of weighing gold. To 
say that a Napoleon is worth 155. 101(7. is perfectly intelligible to every 

50 M N E Y F A C C U X T . 

and the confusion confirmed, by the enactment making sove- 
reigns a legal tender for debts, at the rate of a pound sterling ; 
this "was fixing the price of gold by law, and fastening the money 
of account to gold, whatever might be its fluctuations. When 
this was done, the mint price of gold was <£3 17s, lOicZ. ; and this 
became, under that enactment, thenceforward the fixed price of 
gold in Great Britain, at which all persons were compelled to 
receive it in payment. Whatever may be said of the policy of 
fixing the price of any article, even that designated for money 
by law, it cannot be questioned that it was a false step to endan- 
ger the steadiness of the money of account by fastening it to any 
coin or quantity of gold. The function of money of account 
being to express and register values or prices, whatever tended 
to confuse its operation, change its power, or render its expres- 
sions less intelligible or less reliable, was surely to be avoided. 
Such a measure, if gold remained unchanged in value, could 
have no other ill effect than preventing people from apprehend- 
ing clearly the distinction between the unit of the money of 

English ear; but if you were to ask the exact weight in gold which would 
be equivalent to 155. lOjfZ., not one person in a thousand could reply with- 
out a calculation, or consulting some authority. 

" In England, gold is the only legal tender for sums over forty shillings. 
If you enter a warehouse in London, and ask the price of any number of 
articles over that sum, the salesman will inform you instantly ; but if you 
ask him how much gold you shall weigh him for any article, he cannot 

"When the English farmer asks fifty shillings a quarter for his wheat, 
does he measure the value by a mental reference to fifty shillings, or to 
two-and-a-half sovereigns in gold ? Or does he, on the instant, think of 
either silver or gold? Does he think of anything beyond expressing a price ? 
And did he not, with equal readiness, give the rate before the mint price 
of gold was fixed as at present? If, as some say, the naming a price is 
strictly a comparison of the article priced with its equivalent in the gold 
standard, why is wheat continually quoted in shillings, of which there is 
no equivalent in gold, instead of in pounds and fractions? Why say fifty 
shillings, instead of £2 10a-. ? If the process of naming a price was strictly 
a comparison with gold, the mind would naturally cling to the pound or 
sovereign, and its fractions, especially where there are equivalents in gold, 
and say two-and-a-half sovereigns." — Merchant's Magazine, April, 1852, 
by the author of this volume. 


account and the sovereign, or gold bullion. But if the recent 
influx of gold had been accompanied by the fall in the price of 
that metal, which the extraordinary quantity seemed to warrant, 
then the confusion which must have befallen the money system 
of Great Britain would have been disastrous beyond estimate or 
conjecture. The evil, though alleviated, is greater than is now 
suspected. It is strange that it docs not create more apprehen- 
sion. Great Britain has bound all her subjects to receive 5 dwts. 
and Sjg] grains in payment of a pound sterling. The immense 
pecuniary transactions of that country with all the Avorld tends 
to uphold the price of gold when it exhibits a tendency to sink. 
The flow of gold from all the world to England has been seen, 
and the current of silver from England has not been less visible. 
The depreciation must proceed to a serious extent before its 
efiects become clearly revealed or appreciated. The evil must, 
by its own nature, enhance itself; for the depreciation being 
more clearly perceived elsewhere, the gold would increase in its 
flow to the point of over-valuation. Each step of this deprecia- 
tion would aflect every pecuniary transaction of the countiy, 
and constitute an attack on the national money of account, in 
which all prices, rents, wages, salaries, taxes, and securities for 
money, are expressed. The magnitude of such an evil is wholly 
beyond estimate. That Great Britain has not already suffered 
more from this source is one of the most extraordinary things 
in the history of commerce ; for no sane man would have sup- 
posed that such an influx of gold could take place, as has 
occurred within five years, without a heavy depreciation. The 
causes which have delayed this depreciation are, many of them, 
now well understood. Among them are usually mentioned as 
prominent, an immense displacement of silver by the export to 
the East, caused in part by revolutionary movements in China; 
contemplated rebellion in British India ; short crops ; the in- 
crease of enterprise and manufacturing industry on the conti- 
nent of Europe ; together with an immense absorption of capital 
in the construction of railroads ; these, added to the war with 
Russia, produced a demand for gold which no previous combina- 
tion of circumstances ever equalled. 

52 M N E Y F A C C U N T . 

We can scarcely doubt that the depreciation of gold has only 
been postponed, and that it cannot be avoided, -whether it is to 
take i)laco by a process so slow as to be perceptible only to those 
who will be shrewd enough to take full advantage, or "whether it 
occur so rapidly that none may escape its consequences. But 
whether slow or quick, it cannot occur Avithout much evil to Great 
Bi'itain and the United States. There is no excuse for encoun- 
tering such a mischief without preventive measures. The diffi- 
culty in providing a remedy is only that which arises from the 
coinage, and that presents an obstacle only in reference to the 
merest retail business. Great Britain has only to adopt the same 
principle and practice in regard to gold that has long prevailed 
in reference to silver. Let gold above five sovereigns, or some 
other suitable amount, be a tender only at the market price. 
The regulation of the United States, on the occasion of the 
great influx of gold, was precisely that Avhich it ought not to 
have been. Gold should not have been made a legal tender in 
sums above twenty, or thirty, or fifty dollars, except at the 
market price, which will be familiar to all when it is permitted 
to find its own range like other commodities. 

If this were so, every fall of gold would be at once marked 
on the money of account. An ounce of gold would be quoted in 
London at X3 lis. lO^cl, or at ^3 17s. 5d., X3 17s. Od, <£3 
10s. OtZ., <£3 Os. OcZ., according to its market price. Every con- 
tract for money in the nation would remain intact, and every 
debt paid in gold would be paid only at the market price. The 
sovereigns, and other gold coins and bars, would be public cer- 
tificates of the quantity and quality of the gold in them, but 
would be received only at their current value. No confusion or 
mischief could follow this repeal, to be compared with that which 
may be feared if a heavy depreciation in gold should occur. 

The government, by the adoption of the gold standard iu 
181G, the coinage of sovereigns, and making gold a legal tender 
at a fixed rate, endangered the money of account, and placed its 
very existence on the hazard of the value of gold remaining un- 
changed. No possible improvement in the coinage of a country 


could compensate for the mischiefs of a ruined or confused 
money of account. It is true that such mischiefs have, in past 
times, been often inflicted upon nations ; but the real history of 
these evils is yet to be ■written, and their magnitude to be appre- 
ciated. New coins are frequently introduced with impunity ; 
and, great as the evil of an over multiplication of coins has 
been in many parts of the world, it does not compare with the 
evils involved in an unsettled or broken-down money of account. 

The period of the suspension of specie payments by the Bank of England, 
from 1797 to 1822, furnishes a fit illustration of the functions of a money of 
account. This period included the Mars of the French Revolution and of 
Napoleon, and the three years of war between Great Britain and the United 
States. The commercial payments of Great Britain were, during that pe- 
riod, effected almost entirely by means of credit: gold was so much in 
request for military purposes, that it became an article of merchandize in 
constant demand, at a high price, iu England for shipment to the continent. 
The daily transactions of men involving the whole business of the country, 
the payment of taxes and wages, the sale of goods, the whole move- 
ment of income and expenditure, and the internal exchanges of the country, 
were carried on by substitutes for money, or by the various devices of credit. 
During this long period of paper currency, the money of account fulfilled 
its functions with a steadiness surprising to those who understood not its 
nature. All the contracts of Great Britain involving price and payment 
were made in the language of the money of account. For more than a score 
of years it was the medium of expressing the prices of all commodities, and 
all services. It was equally so before 1797 and since 1822 ; but when there 
is a currency of gold or silver, or a paper currency, that is convertible, it is 
difficult for many to separate the office of a money of account from that of 
coins. It is so fixed in their minds, that gold and silver are the practical 
measures of value, that there is no place in their conception for the exist- 
ence or movement of a money of account. It seems strange, however, that 
any one, during this period of suspension of specie payments in Great 
Britain, could have failed to see-the working of the money of account. Gold 
and silver, during all that period, ceased to be employed as m.oney in large 
transactions: no man sold his goods, or rendered his services, with the 
expectation of payment in coins or bullion. 

Few people in Great Britain, in that day, knew the exact price of gold, 
and no one hesitated an instant in affixing his price to other articles in 
pounds, shillings and pence. Nor did the dealer in coins and bullion hesi- 
tate in naming their price in these denominations. During all that period 
it was the sole medium of valuation, the sole medium of expressing or fixing 
prices. Business men, in those days, did not refer to the precious metals 


in their ordinary transactions. The charges in their books of account, and 
the sums expressed in their bills of exchange and promissory notes, were 
stated in the money of account; but they -were, neither by law nor by cus- 
tom, payable in coins or JauUion. As a matter of fact, the demand for gold 
for exportation so increased its value, that it was sold at times as high as 
100 shillings the ounce, instead of 77 shillings and 10^ pence, the mint 
pi-ice. The proof that this was no depreciation of the paper currency, as 
some contended, is, that the fluctuations of silver did not correspond, either 
in time or rate, with those of gold.' 

There is no adequate proof that general prices in England indicated any 
depreciation of the paper of the bank. It was never quoted as below par. 
The high price of gold was the only real ground for alleging a depreciation 
of the paper. Yet this fluctuation in the price of gold had occurred fre- 
quently before the suspension by the bank in 1797.^ 

It is impossible, then, to refuse to the money of account of Great Britain 
the credit of having, during the important period of British history between 
1797 and 1822, fulfilled the great office of serving as the medium by which 
the people measured or expressed the prices or values of all commodities 
and services in all private and all public transactions. It is equally true 
that it had done so before, and done so ever since. During that time 
they were always conversant with money of account, but very little with 
coins. It was no more evident, however, during that time than since, that 
the fixing a price and expressing it in money of account is one thing, and 
payment is another and quite a different thing. 

In many of the recent discussions in regard to tlie adoption 
of a decimal system, the importance of the British money of 
account is not only fully acknowledged, both by writers and by 
the eminent men who were examined before the Parliamentary 
committee, but the necessity of. preserving it intact is strongly 
urged. Now, if thus important, where is the treatise or work 
in which the nature and functions of a money of account are deve- 
loped ? Where, in what book, or from what authority, are we 
to learn the doctrines of this very important agent in commer- 
cial transactions ? 

^ See within, the closing paragraphs in the Chapter on the Bank of England. 

" Gold was quoted, at the dctes afiBxed, as follows : — 

1783, March Sis. 9rf. per ounce. The mint price being 77». lOJcZ. 

1783, May 828.3d. " " " " " 

1792, May to Sept 81s. " " « " " 

1795-C 858. 86s. S8s. per ounce. " " " " 


If changes of temperature can bo measured and expressed 
by the degrees of a thermometer ; if the pressure of the atmo- 
sphere can be, in like manner, expressed by the scale of a baro- 
meter ; if places on the surface of the earth can be indicated by 
lines of latitude and longitude ; if men understand each other 
Avhen they speak of a foot, a yard, a pound, an ounce, or an 
acre ; and if these modes of expressing temperature, pressure, 
locality, length, weight, &c., can be carried in men's minds, and 
employed constantly and intelligently to express definite ideas, 
how is it that we have been so slow to apprehend that prices or 
values may be expressed in a similar way ? How is it that men 
can carry in their minds distinct and definite ideas of pounds, 
yards, feet and acres ; that they can make estimates, sales and 
contracts, involving immense weight in pounds, and vast lengths 
in yards, and large surfaces in acres or feet, without any appli> 
cation of scales or yard-sticks, if they cannot carry in their 
minds definite ideas of pounds, yards and feet ? It would be a 
vain attempt for government to replace these ideal methods 
for others substituted by authority. The old thermometers, baro- 
meters, degrees of latitude, pounds, yards and feet would main- 
tain their empire over the minds of men once fully accustomed 
to them, for whole generations. 

§ 4. Colonial currency of Canada, ami of the ikirieen colonies noiv of the 

United States. 

The continued existence of the money of .account in the British colonies 
of North America furnishes an apt illustration of the nature and workino- 
of the ideal scale by whicli men make computations, and express prices. 
The money of account is the same, in terms or denominations, as that of 
England, though not the same in meaning. The pound unit of Canada does 
not express the same value as the pound sterling. It is not now, and never 
was, represented by any coin of gold or silver. The people of these British 
colonies receive and pay out the coins of England and France, the United 
States, and other countries, always estimating their value or price in their 
own money of account. They have their own banking system, and their 
own bank-notes issued in sums expressed in their own money of account. 
So, also, are expressed the prices of all articles of merchandize ; and all 
their domestic money transactions are effected in like manner. If the toniv- 


city of those people for their money of account had not been great, it could 
not have been maintained tlms unchanged for over half a century under the 
circumstances of their intimate relations with, and dependence on, the 
government of Great Britain. All the officers and soldiers of the army who 
go out from the parent country, and all the emigrants, carry with them their 
habit of using the British money of account : there must be incessant occa- 
sion, throughout these colonies, of comparing these two moneys of account; 
so much so, that very many of the people must be as flxmiliar with the 
British money of account as their own. The inconvenience of this differ- 
ence must be very great for the British government and its officials, as well 
as for the colonial governments and people. The temptation of^the Impe- 
rial government to make the colonial money of account conform to that of 
Great Britain must be very great; yet, in the Aico of all these circum- 
stances, this colonial money of account maintains its sway in the habits 
and minds of the people. We are not minutely acquainted with its history. 
The latest authority in our hands gives its value as one-tenth less than ster- 
ling; that is, £100 colonial is equal to £90 sterling. It would be interest- 
ing to learn whether this colonial money of account has undergone any 
change within the last fifty years. It is quite probable that fluctuations 
have taken place in the price of the precious metals in these colonies, owing 
specially to an unfavorable exchange creating a demand for specie for expor- 
tation. Such occasions, by showing an increased price of the coins in cir- 
culation, might to some appear like u change in the value of the money unit; 
•whilst, in fact, they would only prove a local demand for the coins or bul- 
lion, and an enhanced price. But what it is desirable to know is, whether 
the Canadian pound, or unit of account, has undergone change in its power 
or value during the last fifty years, as the same is employed by the mass 
of the people. 

British North America furnishes another remarkable instance of perse- 
vering adhesion to a money of account. The French inhabitants of Lower 
Canada cling to the old mode of computation which prevailed in France a 
century ago, when their ancestors emigrated thither. Despite their long 
subjection to British authority, to their being long surrounded by a larger 
population using another money of account, they cling to the denomina- 
tions of livres, sous and deniers. This is a continuation of the old French 
money of account, in which the French Canadians yet express all their 
■prices, and by which they express the value of all the coins in circu- 

The habits of these Canadians afford, then, plain proof that men 
do not measure the value of goods by moans of gold or silver, or their 
substitutes, bank-notes ; and that they do it by means of a money of 
account, which is employed not only there, but in all civilized countries, to 
express the price as well of goods as of money itself. Wc think it will be 

M N E Y F A C C U N T . 57 

found tliat the French Canadian money of account has undergone no change 
in its power or value for a whole century.' 

At the time of the separation of the United States from Great Britain, 
the money of account of all the colonies was expressed in pounds, shillings 
and pence; but these terms had very different significations in the various 
colonies. The term or unit pound, in the following named colonies, is ex- 
pressed as below in our present money of account. No one of these units 
corresponded to the pound sterling — that of South Carolina being nearest. 

£1, New England and Virginia is equal to $3.33, or Cn. ty the dollar. 

" New York and North Carolina •' $2.50, or 8s. " " 

" Pennsylvania and Middle States.... " $2.66, or 7s. 6(?. " « 

« South Carolina " $4.28, or 4.s. 8rf. " " 

Whoever will take the trouble to trace the history of these 
various and differing moneys of account, will find that coinage, 
or the regulations of mints, had little to do with it. The variations 
originated in part from the same, and in part from diff'erent 
causes. Whilst, in England and France, and other European 
countries, the fall in the value of the unit of the money of 
account was caused, generally and mainly, by abusive and fraudu- 
lent regulations of the coinage, in these colonics this departure 
in various degrees from the pound sterling proceeded from the 
monetary struggles arising from over-importation, a consequent 

' As a specimen of the manner in which the prices of various coins were expressed iu 
the moneys of account of the British Provinces of North America : • — 

Coins. Nova Scotia, Halifax. Lower Canada. Upper Canada. Vr. Edward's I. 

A B. d. £ R. d. £ a. a. £ s. d. 

British Guinea 13 4 13 5 15 6 — 

" Sovereign... 15 14 4 1 10 — 

American Eagle 2 10 — — — — ;; 2 6 

British Crown — 5 6 _ g _ 7 6 

" Shilling — 1 1 — 1 3 — 1 6 

American Dollar... — 5 — 5 — — 3 

French Crown — -55 — 5 . — _ — 

" Five Franc. — 4 7 — 4 8 

3fartiii'g Jirilish Colunies, pofje 229, anil Ajipeiidi.v, page 53. 

The units of the moneys of account of some of the British Islands arc as follows : — 

Jamaica £1 sterling equals £1 8s. or Gs. Sd. to the dollar. 

Barbadoes " " £1 7s. or Gs. 3(/. " " 

Windward Islands " " £1 15s. or 8«. Zd. " " 

Leeward Islands " " £2 Os. or Ss. Qd. '<■ " 

58 M N E Y F A C C U N T . 

long-continued unfavorable exchange, and from a depreciated 
paper currency. The different circumstances of different colo- 
nies led to varying results; but, when the advance of indus- 
try and domestic trade had secured greater prosperity, and 
a more settled policy, these various moneys of account became 
fixed. There never had been any coinage to correspond with, 
or sustain any of them. The coins in circulation ^Yere almost 
exclusively Spanish ; there could be no pretence that these 
moneys of account corresponded with or represented any coins 
or system of coinage, or that they were in the slightest degree 
supported by coins or coinage. Every coin in circulation was 
as much the subject of price estimated in these moneys of 
account, as a bushel of wheat, or a barrel of flour. All prices 
in each colony, and subsequently in each State, were expressed 
in the pounds, shillings and pence of that locality. The people 
measured not values by coins, but they expressed the known 
value of coins like other ascertained quantities, by their own 
money of account. These varied moneys of account were adhered 
to, from mental habit, for thirty to fifty years after our present 
simple decimal system was adopted. It is no uncommon thing 
now, in the interior of Virginia and Massachusetts, to hear 
people express prices in the old money of account. In New 
York the term shilling prevails yet, as it agrees with the Spanish 
subdivision of the dollar adopted as the unit of our national 
mono}'' of account. It was a common practice for merchants, 
for tAventy years after the adoption of the dollar unit, to keep 
their books in the pounds, shillings and pence, with blank 
columns, in which, at their leisure, they converted their first 
entries into dollars and cents. For though merchants and pro- 
fessed accountants became familiar with dollars and cents, 
they were obliged to deal with the people in pounds, shillings 
and pence. It is true the value of the dollar was well known to the 
men of that day, but it Avas known only as the value of other 
things ; it had no place in the minds of the people as the unit 
of a money of account. For them, prices expressed in dollars 
would have to be converted into pounds, shillings and pence. 
In the latter terms they instantly understood prices in all their 

M N E Y F A C C L' N T . 59 

relations ; but prices expressed in dollars, or in sterling money, 
involved a calculation. Notwithstanding the simplicity of the 
dollar unit, and the extreme inconvenience of the differing 
moneys of account in the different States, seventy years, or two 
generations, have passed since the change was made, and yet 
traces of the old habits of reckoning are to be met with in 
all the old States. If any man finds himself unable to compre- 
hend the working of a money of account, and its firm hold on 
the minds of people, let him study these moneys of account of 
the Atlantic States of North America. 

§ 5. Moneijs of account in Ilaly, Germany, &c. — Evils of varied 
coinage — Coinage implies a previous price — Coi^is not a measure — 
Prices in rnoneij of accoxint understood instantaneously — Eicardo — Sir 
James Stewart — Bishop Berkeley — Montesquieu — Money of account to 
he taken as it is, aiul its limits of itsefulness studied — Edinburgh 

We have abstained from entering at large into any notice of the moneys 
of account of various European countries, whicli, though full of instruction, 
are so complicated with questions of banking and coinage as to be less 
easily understood. The small extent of the separate countries of Germany 
and Italy, and the consequent multiplication of contiguous mints and varied 
coinage, and the blending in the circulation of so many different coins, 
early begot an amount of vexation and loss in money transactions, which 
people only bore because a remedy seemed hopeless. The evil, instead of 
diminishing, only increased with the lapse of time ; for every effort of 
reform, and every application of remedy, only enhanced the mischief. It 
is easy to see, however, through the endless mazes of this varied coinage, 
that the evil would have been insufferable but for the facility afforded by 
moneys of account in valuing and computing the numberless coins which 
went to make up the circulation in many parts of Europe. It is true that 
this facility was somewhat diminished by the formation, in many countries, 
of several different monej's of account. Some coins were computed in one 
money of account, and some in another. In some countries one money of 
account was appropriated to bills of exchange, and another was used in the 
bank accounts. 

People who were flooded with such a varied coinage as that 
w^hich prevails in Germany and Italy, were often reduced to the 
patriarchal mode of making payments by aid of the scales. The 
method subsequently adopted to escape these evils was to pub- 

60 JI N K Y F A C C IT X T . 

lisli tables of the various coins in circulation, -with their value in 
the most used money of account of the country where the table 
was constructed. Such a table is that made by Sir Isaac New- 
ton in 1710, a copy of which is found in the second volume of 
Kelly's Cambist (page 154) ; several such tables, of recent 
date, are found in the same volume, in the pages succeeding. 
These statements show that there were thirty gold coins called 
ducats, some twenty-five of which were from different mints, 
with wholly dififcrent impressions, and scarcely any two of which 
were of the same value. There were twenty-three gold coins 
called pistoles, from nineteen different mints, of differing values 
and impressions. No less than fifty-one silver coins, called rix 
dollars, were in circulation from about twenty different mints, 
and of varying value. We might adduce many such cases, to 
show how very complicated and vexatious is the general coin- 
age of Europe. But the real extent of the evil cannot be conjec- 
tured from such instances, even if we had space to continue 
them. To know these coins, and deal in them, becomes a special 
branch of the business of private bankers, who of course must 
have a compensation for their skill and trouble. Many of the 
continental public bunks had their origin mainly in this difficulty. 
To scrutinize, count and pay over these coins became such a bur- 
den, that it was assigned as among the chief reasons for the 
establishment of the banks of Amsterdam and Hamburg. Those 
who carefully examine the mode of proceeding by merchants and 
bankers through all this labyrinth of moneys, will find that it 
was only mastered by the mental habit of subjecting all these 
coins to the valuation of one or more moneys of account. It is 
no great difficulty for men much accustomed to deal in money to 
master several difierent moneys of account, and employ them 
mentally with equal facility. There are many men who, from 
their peculiar position in business, can apply with equal readi- 
ness the moneys of account of England, France and the United 
States. Time and opportunity may give this facility to any per- 
son ; but, unaccustomed to other moneys of account than their 
own, the most expert arithmeticians of either of these countries 
will always be found converting the money of both the others 


into their own, as a means of ascertaining its meaning or value. 
An Englishman, simple as the French system is, always men- 
tally converts every sum and price named to him in France into his 
complicated denominations of pounds, shillings and pence, before 
it presents to his mind a full idea of the value expressed. So, 
indeed, must the traveller from France do in the United States, 
although familiar with a decimal system similar to our own. The 
price of a horse, or a coat, in dollars docs not instantly convey 
to his mind the value named ; it must be turned into francs. 

All modern coinage implies some previous mode of expressing 
value or prices. It will be seen that the coins are always made 
to correspond with the denominations of this mode of expression. 
When the English sovereign was first coined in 181G, it was 
made to contain so much gold as was equivalent to a pound ster- 
ling. And so it will be found that coins are always made to 
correspond not specially with a previous Aveight or coin, but 
always with the money of account. This w^ill be shown more 
fully hereafter. Coinage, as now conducted at modern mints, 
is not only in accordance with the prevailing money of account, 
but subservient to it. A certain weight of gold or silver has its 
price expressed in some particular denomination of the money of 
account. Three things are expressed in a coin, weight, quality, 
and price or value. Its weight is ascertained by actual applica- 
tion of the balance in the mint ; its quality, or standard of fine- 
ness, is also fixed by law and the workmanship of the mint ; its 
price is also fixed by law before it is coined. It is made to corre- 
spond to some previous rule in all these respects. It is not, 
therefore, a measure or criterion of value ; but an article pre- 
pared by the mint, and vouched by the public authorities as of a 
proper Aveight and quality to be employed in payment at a par- 
ticular price. It is a commodity commonly used in payment, 
and approved for that purpose, which is brought to one common 
standard of quality, and divided into pieces accurately weighed, 
and of such size and weight as will be convenient for use, reckon- 
ing and circulation. If these coins Avere in occasional use among 
savages for the purposes of exchange, they Avould probably com- 
pare every article Avith the coin, and among them coins Avould bo 

62 M N E Y r A C C U N T . 

a kind of measure of value. In civilized life, coins arc not mea- 
sures of value, but special quantities of gold or silver weighed, 
certified by the impression received at the mint, and adjusted 
by the weight given to them to a particular price expressed in 
the money of account. The gold and silver thus prepared has 
given to it every possible advantage as a medium of payment. 
As a general equivalent, no commodity has ever been preferred, 
and none is likely to be preferred. We therefore count coins, 
"we pay in coins, but we do not express prices nor keep books in 
coins.' All our computations of money, all our conversation 
about the market value of merchandize, all the sums named in 
reference to real estate or public revenue, all the sums expressed 
in bills of exchange — all these, as we have said, are stated in 
money of account. If one person say to another, I will give 
you $10,000 for your house, he to whom the offer is made 
knows instantly the import of the offer ; but if, instead of this, 
he places before him a large cask of dollars, and says, I will 
give you these, it may require two or three days' time to ascer- 
tain how much is offered. So any one understands, in an 
instant, what value is intended by $100 ; but it may require 
many minutes to count and scrutinize $100 in coins. In analogy 
Avith the mental process which is applied to all measures and 
weights when they are merely spoken of and not actually used, men 
employ a money of account to express prices. It is only arith- 
metic, with a value affixed to the unit or number one, which is to 

' "A coin is merely a piece of metal, of known weight and fineness." — 
"It has been said to be both a sign and measure of value; in truth, it is 
neither." — " It is equally incorrect to call money a measure of value. Gold 
and silver do not measure the value of commodities more than the latter 
measure the value of gold and silver. When one commodity is exchanged 
for another, each measures the value of the other." — Encycl. Britt., article 
''Money," by J. R. M-Cullock. 

Mr. M'CuUoch and others have thus clearly taken away the old mea- 
sure, without bringing forward the real agent in fixing prices. It is money 
of account which makes of the exchanges of civilized people a real barter; 
it registers prices and amounts, and the credit system efi"ects the pay- 
ments. Commodity, in fact, pays for commodity. This is explained as we 

JI X E Y F A C C U N T . 63 

accompany all subsequent numbers and combinations in propor- 
tion to the number of units expressed. Fractions and decimal 
parts are expressed as in all other cases. 

" During the discussion of the bullion question," says Mr. 
Ricardo, " it was most justly contended, that a currency, to be 
perfect, should be absolutely invariable in value." 

" But it was said, too, that ours had become such a currency 
by the bank restriction bill ; for by that we had wisely discarded 
gold and silver as the standard of our money ; and, in fact, that 
a one pound note did not and ought not to vary with a given 
quantity of gold more than with a given quantity of any other 
commodity. This idea of a currency without a specific standard 
was, I believe, first advanced by Sir James Stewart ; but no one 
has been able to offer any test by which we could ascertain the 
uniformity in the value of a money so constituted."' 

This shows that even Mr. Ricardo, who must have known what 
was meant by a money bf account, could not embrace its func- 
tions in his view of money in general. Sir James Stewart, in 
whose Avorks we first find distinctly set forth the existence and 
uses of a money of account, did not speak of it nor propose it as 
a currency ; he did not regard it as money. We give his own 
words : — 

" Money wliich I call of account is no more than a scale of equal parts, 
invented for measuring the respective value of things vendible. 

" Money of account is, therefore, quite a different thing from money coin, 
and might exist although there was no such thing in the world as any sub- 
stance which could become an adequate and proportional equivalent for 
every commodity. 

"Money of account performs the same oiBce, with regard to the value of 
things, that degrees, minutes, seconds, &c., do with regard to angles, or as 
scales do to geographical maps, or to plans of any kind. 

"In all these inventions there is some denominative taken for the unit. 

" In angles it is the degree ; in geography it is the mile ; in plans, foot, 
yard ; in money it is the pound, livre, florin, «S;c. 

" The degree has no determinate length, so neither has that part of the 
scale upon plans or maps which marks the unit; the usefulness of all those 
being solely confined to the marking of proportions. 

' Proposals for an Economical and Secure Currency, Section II. 

34 M N E Y F A C C U N T . 

"Just so, the unit in money can have no invariable determinate propor- 
tion to any part of value ; that is to say, it cannot he fixed in perpetuity to 
any particular quantity of gold or silver, or any other commodity. 

"The value of commodities depending upon circumstances relative to 
themselves, their value ought to be considered as changing with respect to 
one another only ; consequently, anything which troubles or perplexes the 
ascertaining these changes of proportion by the means of a general deter- 
minate and invariable scale, must be hurtful to trade; and this is the infal- 
lible consequence of every vice in the policy of money or coin. 

" Money, as has been said, is an ideal scale of equal parts. If it be de- 
manded, what ought to be the standard value of one part? I answer by 
putting another question : what is the standard length of a degree, a minute, 
or a second ? None ; and there is no necessity of any other than what, by 
convention, mankind think fit to give. 

"The first step being perfectly arbitrary, people may adjust one or more 
of those parts to a precise quantity of the precious metals ; and so soon as 
this is done, and that money becomes realized, as it were, in gold and silver, 
then it acquires a new definition ; it then becomes the price, as well as the 
measure of value. 

" It does not follow, from this adjusting of th» metals to the scale of value, 
that they themselves should therefore become the scale." 

Sir James Stewart then refers to the bank money of Amsterdam, and 
the African custom, mentioned by Montesquieu, as perfect exemplifica- 
tions of a money of account. "A florin banco has a more determinate value 
than a pound of fine gold or silver; this bank money stands invariable like 
a rock in the sea." — Sir James Sieivarfs Political Economy, B. 3, cli. 1, vol. 
•/., Ath ecL, jh 526. 

Now, whatever may be the imperfections of this statement, by Sir James 
Stewart, of the nature of a money of account, Mr. Ricardo should have seen 
that he did not propose " a currency without a specific standard." He did 
not propose a currency of any kind ; for a currency is something which 
passes as a medium of exchange, and a money of account is something 
which every one must carry in his mind as he does his knowledge of words 
and arithmetic. 

"It has long been obvious to observing men that there was something 
more in the nature and functions of money than was exhibited in the mere 
coinage of the precious metals, and that many false measures and notions 
were prevalent in consequence. To some it appeared clear that any sub- 
stance whatever might serve for money, if men were only agreed to receive 
it as such. Hence, probably, the Carthaginian attempt at money of leather, 
and the Chinese paper-money. Those who saw clearly that money per- 
formed a certain circle of operations, returning to perform them again and 
again, were struck with the constantly repeated routine in which money 

M N E Y F A C C U N T . 65 

appeared to circulate. This subject was occasionally adverted to long 
before it was ever seriously taken up. Bishop Berkeley, in his 'Querist,' 
was one of those vrho first intimated the distinction between money and 
money of account. In his 23d query lie asks: ' Whether money is to be 
considered as having an intrinsic value, or as being a commodity, a standard-, 
a measure, or a pledge, as is variously suggested by writers? And whether 
tlie true idea of money, as such, be not altogether of a ticket or counter?' 
Query 25 : ' Whether the terms crown, livre, pound sterling, &c., are not 
to be considered as exponents or denominations' (see, also, the 24th query); 
'and whether gold, silver and paper are not tickets or counters for reckon- 
ing,' &c. Query 26 : ' Whether the denominations being retained, although 
the bullion were gone, things might not, nevertheless, be rated, bought and 
sold, industry promoted, and a circulation of commerce maintained ?' Query 
35 : ' Whether power to command the industry of others be not real wealth ? 
and whether money be not, in truth, tickets or tokens for conveying and 
recording such power, and whether it be of great consequence what mate- 
rials the tickets are made of?' 

" It is evident the Bishop saw dimly the value and functions of a money 
of account, but that he did not perceive the nature and use of a coinage, or 
the importance of the precious metals as a universal equivalent. Thus it is, 
that while some have looked at the money of account, they lose sight of the 
importance of coins, or the regular mode of authenticating the pieces of 
gold and silver, which are used sometimes for payment; whilst those who 
regard the latter too narrowly, are not able to comprehend that money of 
account in which all men name their prices, and keep their accounts. 

" Montesquieu, in the 3d chapter of the 22d book of the ' Spirit of Laws,' 
treats expressly of ideal money: 'There are real and ideal moneys: civil- 
ized people, who all use ideal money, do so because they have converted 
their real into ideal money. Those who at first had a real money find that 
by fraud, or by act of the government, a part of the metal which should be 
contained in a coin is withheld, abstracted, and the piece thus reduced is 
still called by its former name.' lie saw clearly that men reckoned by a 
money of account, but imagined it was only because the coin had been 
altered. The truth is, however, that the temptation to alter the coin arose, 
as we shall explain, from the fact that a gain could be made by using the 
terms of the money of account to keep up the deception of the debased coin. 
That which was called a shilling, was still called a shilling, although re- 
duced in quantity and value ; but the idea of the value of a shilling being 
firmly fixed in the minds of the many would be applied, by reason of the 
name, to the debased coin. And the evil of these changes induces the author 
of the ' Spirit of Laws' to discourage the use of ideal money. In the 8th 
chapter of the same book he tells us, that ' the blacks on the coast of 
Africa have a sign of value without money, purely ideal. A certain article 
is worth three macutes, another six, another ten niacutes. That is the same 

GQ M C X E Y F A C C U N T . 

as if they said simply 3, G, 10. The price is fixed and expressed by com- 
parison of commodity with commodity, for there is no money in particular, 
but every portion of goods is money, or means of payment, compared with 
others.'" — From an article, hy the author of this volume, in the " Bankers^ 
Magazine," of July, 1857. 

The power and functions of a money of account are of great 
importance ; but we must take the money of account for what 
it is, and for nothing else. We may trace its history, study its 
applications, and consider its range of power and usefulness ; 
but we cannot deny its existence, nor shut our eyes to the fact 
that its use is as universal, as it is unavoidable, among all civilized 
people. It is a very proper and natural inquiry how far a 
money of account may be relied upon for uniformity and perma- 
nence. Since men will estimate and count by an ideal scale, 
it becomes important to learn all that can be known of this im- 
portant mental process. What are its advantages and disadvan- 
tages ? Does the unit of the money of account vary under slight, 
or only under extraordinary influences ? What kind of influences 
seem most to aflect it ? These, and other like questions, may 
well demand consideration ; but no one can any more be held 
responsible for the defects of a money of account, than can any 
one claim merit for it as an invention of his own. Sir James 
Stewart was not the inventor of that Avhich had been in use in 
all ages ; and it was not incumbent on him " to offer any test 
by which could be ascertained the uniformity in the value of a 
money so constituted." Few men were better fitted to judge of 
the uniformity of a money of account than Mr. Ricardo, if he 
had applied himself to that particular point. ^ 

' " It is clearly necessary, therefore, to have a mode of expressing 
values, which is as applicable to every change in the value of the precious 
metals as to any other commodity. This is what they have in China, and 
what they had in Venice, and what tliey have in Hamburg, and in every 
commercial community, where their coins do not correspond with the money 
of account. It is what they have even where this correspondence exists, 
but with such confusion of ideas as greatly impairs the advantage. Mer- 
chants, bankers and capitalists can readily apply the usual money of account 
to bullion ; and the price-currents give constantly the price of gold and sil- 
ver in bars by the ounce, and of doubloons and dollars. But the mass of 


§ 6. Moneys of account, liow formed, pi-eserved, disinrhcd and destroyed. 
The agency of moneys of account being acknowledged, it be- 
comes a matter of interest to consider how they are formed, pre- 
served inviolate, and disturbed or destroyed. Hitherto, whilst 

the people are prone, in Great Britain, to look upon the precious metals, 
and pounds and shillings, as the same thing. It is, however, none the less 
true, that the course of dealing converts any system of coinage into a money 
of account used in all the price-lists, and in all sales. Men familiar with 
prices soon learn to carry the prices of hundreds of articles in their memo- 
ries, with all the fluctuations that are constantly taking place ; and this 
they do not accomplish by keeping in their minds a distinct idea of the 
quantity of gold or silver which may be the equivalent of each price, for of 
these quantities they may have no correct conception at all. However it 
may be done, whether by mere force of memory or practice, or by the aid 
of association, it is true that men in business carry a vast amount of details 
about prices in their rninds, who know very little of anything about gold 
and silver coins or bullion. It is, hence, always the tendency of commerce 
to create a strict money of account, especially among those who have most 
to do with trade, and most familiarity with prices. This would be at once 
seen and credited, were no coins circulated; but it is no less true where it 
cannot readily be detected, than where it is evident in the business of every 
day. The occasions in which prices are named, discussed and fixed, are 
vastly more numerous than those in which any actual or veritable measure- 
ment of the value of any article is made in gold or silver ; so much more 
so, that those whose occupations lead them incessantly to the consideration 
of prices, find it much easier to carry money of account in their heads than 
money of coins in their hands. 

"Mr. Locke has said, men do not contract for denominations, not having 
noted that they contract by them; and the writer of an article in tlie 'Edin- 
burgh Review' for October, 1808, says that 'Abstract ideas are of no use in 
going to market.' Mr. Locke has been frequently refuted and contradicted 
in reference to some of his positions about money ; and the autl^r of the 
article in the 'Review' has been handled with masterly severity and power 
by the writer of the book reviewed.' The author of the 'Review' has used 
this flippant expression as an argument; and it is clear enough, from a 
survey of the entire article, that his conceptions and practical knowledge 
of the whole subject were far too confused to enable him to escape from 
fallacies even as glaring as that. He quotes with equal readiness to support 

'"Essay on Money and Exchange," by Thomas Smith, 8vo. page 231: Loudon, 
1807. " The Bullion Question Impartially Discussed : an Address to the Editors of 
Ed. Review," by Thomas Smith: London, 1812. 

G8 M N E Y F A C C U N T . 

the subjects of money, coinage, coins, the precious metals, cur- 
rency, and banking, have been treated at great length, but little 
attention has been given to moneys of account, and still less to 

his positions, that which is directly against, as that which sustains them. 
lie neither comprehends the work reviewed, nor the authors whose works 
lie quotes. This is not for want of abilit}', but for want of sufficient previous 
knowledge of commerce and the use of money. He would have found it 
very difficult to give a philosophical reply to the question, With what kind 
of money did Englishmen pay their debts from 1797 to 1822, during the 
period of suspension? His position, that 'nothing can measure value but 
value itself,' would hardly be a satisfactory response. He could not fairly 
rid himself of the interrogatory, as ho does of the African custom of reckon- 
ing, by an imaginary standard of bars (originating from bars of iron) ; 
' When tlie Africans estimate the value of a purchase in bars of iron, they 
have not, in general, the bars to give for it; they have only some other kind 
of goods, and their purchases and sales are mere barter, though they esti- 
mate the value of the commodities given and received by comparing them 
with bars of iron. When the Europeans, however, make their estimates by 
comparison with ascertained quantities of gold and silver, iJie)/ have the gold 
and silver ready to give for the commodity which is the object of the pur- 
chase.' This was a monstrous assumption for an Englishman to make in 
1808, even for the sake of argument. That it was done in pure simplicit}' 
is evident from the following sentence : ' The convenience of this is very 
great.' Notwithstanding this convenience, it is probable that not one pound 
hterling in one thousand of this convenience was used in payment for com- 
modities during the quarter of a century of suspension. And from 1822 to 
this day, but a very small proportion of such payments have been made In 
the convenient shape of coins. What, then, did Englishmen use to make 
their purchases? A more intimate knowledge of the laws of trade would 
have taught the reviewer, that the transactions of English commerce might 
be resolved into barter as justly as those of Africa. He would have found 
it difficult to explain, on his principles, why counterfeit coins and notes are 
just as efficient and convenient, until discovered, as the genuine; the whole 
loss fallihg upon those in whose hands tlie^^ are detected, although pur- 
chases may have been made with them to thousands of times their nominal 
value. The mind of the reviewer was thrown into a perfect chaos, by 
assuming that what Mr. Smith called a standard unit of the money of 
account was meant as a standard of value. lie floundered in this misunder- 
standing, without reaching a single clear conception of the subject strictly 
under review. Money of account is not a standard of value, it Is an expres- 
sion of value or price ; by aid of arithmetic and men's mental faculties, it 
becomes, so long as undisturbed, the surest and most reliable expression 
of prices or values. There can be no standard of value in the sense in 

M X E Y F A C C U X T . 69 

the manner of their formation, preservation and destruction. 
We cannot leave the subject without adverting to these topics. 

From what we have presented to the reader, it will have been 
seen that when any special coin, or weight of gold or silver, or 
any other article of value, has been employed for a time as an 
equivalent, or in payment for things purchased, people assume 
the value of the article in question as the unit of a money of 
account, and employ it, with the aid of arithmetic, to express 
prices. The more active the dealings of a people, the quicker 
they fix in their minds the unit from which proceeds a money of 
account. This is fastened upon the minds of the masses by inces- 
sant use ; few habits, mental or bodily, are more constantly in 
use than the fixing and expression of prices. This unit of the 
money of account becomes familiar to every one; and being 

which the term is sometimes emplo3'ed; the right use of the term, as applied 
to the precious metals, is the standard of coinage." — Ariide in ihe "BanK-er^s 
Magazine," hy the author of this volume, July, IS")!. 

Tlie examination of this subject was not without profit to the reviewer. 
He took up his pen to ridicule and crush Mr. Smith, and his idea of a monej' 
of account. lie did not spare any weapon used by reviewers; and after 
having, as he complacently supposed, destroyed all Mr Smith's claims, he 
very coolly puts forth the very opinion the review is written to controvert. 
lie ridiculed Mr. Smith out of his shoes, and dcliberatnly and gravely steps 
into them, and thus delivers himself to his readers : — 

" Next we account, hy means of money. Now, what is the operation of 
accounting? We first state, in denominations of money, the value of any 
article, or accumulation of articles ; and this statement we can manage in 
various ways. We can add to it another similar statement, or we can sub- 
tract it; we can multiply it; we can divide it, and discover various rela- 
tions which it bears to other statements. In all these operations the terms 
pounds, shillings and pence exactly resemble algebraic symbols, and the 
letters x, y, z, might be employed for them. Operations of account, there- 
fore, are undoubtedly carried on by abstract terms or symbols, and it is 
impossible it should he otherwise." — Edinhuryh Review, October, 1808. 

Th. Smith, Wilson, and others, who, during the period of the British sus- 
pension, advocated the agency of money of account, committed the serious 
mistake of applying the terms, standard and currency, to mere money of 
account. It was an error to speak of a " standard unit," and still worse 
of " abstract currency." The reviewer expresses the true agency of the 
money of account. 

70 M N E Y F A C C U N T . 

employed daily and hourly in reference to thousands of articles 
of value, it cannot change unless some unfavorable influence is 
brought to bear upon it. That which is committed to the memo- 
ries of the people of a whole nation — that which they are repeat- 
ing constantly, and multitudes do little else from morning to 
night, cannot be forgotten, and cannot easily change. Any ten- 
dency to change in one locality would be checked by another. 
If undisturbed, we see no reason to believe that the dollar, the 
unit of our money of account, would change in a thousand years. 
Some moneys of account are known to have remained unchanged 
for hundreds of years, one of which was the money of the Bank 
of Venice. "Whenever the business of a people continues unin- 
terrupted, their money of account must continue unchanged, if 
not purposely or Insidiously, directly or Indirectly, attacked. 
Its principle and working being understood, public authority 
may be employed to protect it from attack or unfavorable influ- 
ences. Legislation cannot suddenly create moneys of account ; 
it may unsettle and destroy those Avhlch long use has established, 
or it may defend them, and when It Is expedient to change, pro- 
vide that it may be done with the least possible injury to the 
innumerable Interests affected. 

There are many ways in which moneys of account become un- 
settled Or destroyed. If the money unit has a coin to correspond 
with it, the correspondence is of course a fact familiar to every 
one. This is the case with our dollar coin, and our dollar unit. 
If we had no dollar coin, the people would have equal facility in 
the use of their money of account ; but as we have one, the fact 
of their being of equal value is by all taken for granted. Now, 
if gold should very gradually fall in value, and if the gold dollar 
coin continued In circulation for a considerable length of time, 
a gradual accommodation of the money of account to the coin 
might take place. But such changes being always sooner per- 
ceived, and better understood, by dealers in coins and bullion, 
never take place but at immense loss and disadvantage to the 
bulk of the people ; because the prevailing systems of coinage 
conceal the market price of the precious metals from all but 
those initiated in the mysteries of the bullion market. Of course 


tliis cause of change is much more effective where the coin is 
made a legal tender for the amount of the money unit. If, in 
such case, the coin falls in value, the law still makes it trood for 
the discharge of the same amount as hefore the depreciation. 
This conceals the fact of depreciation, and the unit of the money 
of account is betrayed into gradual conformity with a coin which 
has really lost its value, and is reduced in its power of purchase. 
This occurred in many instances after the discovery of America, 
and the influx of silver, which was a result. 

" The want of a clear conception of the existence and functions of a 
money of account has beclouded nearly all the legislation, and all the spe- 
culations on the subject of money, during the last century and a half. We 
shall have occasion to note how much it was needed in the English contro- 
versies during the period of the bank restriction. It is strange, indeed, that 
what was so well understood at Venice, and familiar there for centuries to 
her mercliants who traded throughout the world, should not have been more 
generally comprehended elsewhere. At Venice there was a money of account 
which had no coins to correspond, and nearly all the payments of that great 
city were made in bank credits as expressed in that money of account. This 
was so, also, in other countries. 

" It is true that kings and ministers were not without some knowledge 
on this subject. All the attempts to make advantage by debasing the coins, 
or raising their value, proceeded from some knowledge of the agency of 
money of account. These attempts were made in the expectation that the 
habits of the people, in expressing values by the usual money of account, 
would lead them to continue to estimate coins of the same name, at the 
same value, after a part of their proper quantity or quality had been ab- 
stracted. This kind of swindling was employed to rob the people for cen- 
turies, with very considerable success, though not always equal to the 
expectations of the perpetrators. The fraud did not consist in mej'eZy making 
the coins lighter; that could readily be detected, and its consequences 
avoided ; but it consisted in calling that a crown, shilling or franc, which 
no longer contained the same quantity of silver which coins of these names 
had formerly contained. When the prices of all commodities were expressed 
in these denominations, they could not all readily be changed, and con- 
tracts would continue to be made for some time before prices would be 
adjusted to the change. The money of account would continue to operate 
unchanged long enough to give rapacious rulers some advantage of their 
operation. But the efiuct of names, and the new coin being a legal tender, 
would finally break up the money of account, and compel a new adjust- 
ment, or scale of prices. So long as the coins were named by the denomi- 
nations by which prices were expressed, so long every change iu the quan- 

72 M N E Y F A C C U N T . 

tity or quality of metal in these coins, connected with their being made a 
legal tender, broke up and destroyed, soon or late, the existing money of 
account. This tampering with, disturbing, and occasionally wholly de- 
stroying the adjustment of prices, as expressed in the money of account, 
was an intense evil inflicted for ages upon the various countries of Europe. 
It could not, however, have been accomplished so successfully if the nature 
of the mischief had been understood. The mystery which shrouded the 
subject of money enabled each perpetrator of this fraud to offer plausible 
arguments which the people could not successfully refute, even if not con- 
vinced. Largo capitalists generally shared the profits of these financial 
operations, whatever pains were taken to reserve the whole to the adminis- 

" In Venice, where the money of account was undisturbed for upwards 
of five hundred years, and was the medium in which the value stated in 
bills of exchange and bank credits were expressed, the chief payments 
during all that time were made in hank credits, bearing a premium of 
twenty per cent, over the precious metals. Any attempt by the Venetian 
government to debase the coin would have been futile and ineffectual, 
unless the bank had been at the same time destroyed, and the money of 
account broken up. Many changes were made in the coins of Venice, but 
their true value, in every instance, was at once marked by their value in 
the bank money. 

" The various debasements in England consisted in, from time to time, 
increasing the number of shillings coined from a pound of silver. In 1066, 
one tower pound of silver was coined into 20 shillings ; by the year 1464, 
six debasements had increased the number to 375. Gc7. In 1527, the pound 
Troy of silver was coined into 45 shillings ; two changes carried the num- 
ber, by the year IGOl, to G2 shillings. It is now at 66 shillings. Now, 
the mere reducing the weight of a coin ought not to be considered a debase- 
ment, any more than issuing half crowns instead of crowns. It was the 
very fact that the public had the comparative value of the shilling clearly 
in view, that made It profitable to call a less weight of silver by the name 
of a shilling. If a piece of silver weighing 20 dwts. had been reduced to 
19 dwts., it would have been estimated accordingly. But the shilling, as 
a term of comparison, was applied to a thousand commodities of trade." — 
Bankers' Magazine, July, 1857. Ariidc hij the author of this volume. 

The livre of France was reduced from a pound of silver to 
very little more than the hundredth part of a pound. In many 
countries the reduction Avas still greater. In all the countries 
where the unit of the money of account originated from the use 
of the pound of silver in coinage, it would, but for the debase- 
ment of the coins, have remained until this day unchanged. Let 

M N E Y F A C C U N T . 73 

any one look into the history of one of these violent changes, 
and he will see what a struggle it is for a people suddenly to 
change their money of account, and what confusion takes place 
at such a time in all transactions of money and commerce. 

A money of account may also become unsettled or destroyed, 
and a new one originated, by the depreciation of a paper cur- 
rency issued in correspondence with the unit of a money of 
account. Tliis, however, is not so apt to occur, unless the 
paper currency is a legal tender for debts, or where some special 
government or bank paper composes the whole, or nearly the 
whole, circulation. If such paper gradually falls in value to a 
fixed depreciation, it gives rise to a money of account corre- 
sponding to it ; and if sales be made by that money of account, 
and payment be made in coin, the latter is valued in the money 
of account high enough to cover the depreciation. Many in- 
stances of this are met with in Europe ; and remarkable cases 
are found in Austria and Russia. It was urged, as we have 
already noticed, by many in England, that the notes of the 
Bank of England were depreciated, during the suspension of 
specie payments, precisely in proportion to the enhanced price 
of gold. If this had been so, the English money of account 
would have been changed in the same proportion ; that is, above 
ten per cent. That appeai-ed to be so to those who could not 
conceive that gold could rise in value sufficiently to account for 
all that difference ; but it was denied by those who could not 
believe that ten per cent, had been added to the nominal value 
of everything in Great Britain except gold. It cannot be de- 
nied, however, that if the Bank of England had not, in that 
important crisis, been managed with signal wisdom and skill ; 
and if the government, in that time of great expenditure, had 
not acted tov/ards the bank with equal prudence and for- 
bearance, the notes Avould liave depreciated to a much greater 
extent than ten per cent. It may be questioned whether any 
ins'tance of like good management on the part of bank directors, 
and like forbearance on the part of a needy government, can be 
found. England thus saved her money of account, and avoided 
immense derangement of the pecuniary concerns of the people. 

74 M N E Y F A C C U N T . 

The history of the suspension of the Bank of England for 
twenty-five years is probably, taken in all its bearings, one of 
tlie most instructive portions of the history of money. ^ The 
imdcniable fact that all the dealings of that period of foreign 
war, and increased commerce and industry, were carried on in 
the language of the English money of account ; and that nearly 
the whole of the payments Avere made in irredeemable bank- 
notes, and in checks upon banks not paying gold or silver, can- 
not be explained but by the agency of money of account, and its 
important subserviency to the credit system. 


The reader is specially desired to notice that we are not, in 
this, bringing forward or recommending any new mode of reck- 
onino" or computation. We simply assert the matter of fact, that 
all prices, all books of account, all statements of sums of money, 
all bills of exchange and promissory notes, and all bank-notes, 
are expressed in money of account. All that is said or done 
with reference to money, where neither gold nor silver, nor other 
medium, is employed, is merely a use of money of account. If 
this be a fact in the mental habits of all civilized people, as we 
not only aver it to be, but that it cannot be otherwise, it is im- 
portant to comprehend all its uses. We must accept the fact, 
if it be one, together with all its inevitable and all its proper 
consequences. The conclusions to be drawn from this fact are 
a separate consideration. There may be difierences of opinion 
as to the deductions which may be drawn from, or the uses 
which may be made of it ; but whatever these may be, we must 
not shut our eyes to a fact so important, the proof of which is 
so obvious and so indisputable, and the influences of which are 
in constant and active operation, whether we notice them or not. 

' See ante, page 52, and closing pages of Chapter en Bank of England. 



No writer, so far as we know, has apprehended more clearly the nature 
of a money of account, than the Marquis Garnier, who, in 1817, read to the 
Trench Academy of Inscriptions and Belles-Lettres a memoir upon the 
values of moneys of account among the nations of antiquity. lie published 
afterwards, in 1819, a " History of Money from the highest antiquity to the 
reign of Charlemagne." The latter work contains a chapter on Moneys of 
account, which embraces the substance of the previous memoir. This 
learned writer ascertained, in the course of his investigations, that it was 
impossible to comprehend the ancient writers when they spoke of money, 
or to arrive at any sound conclusions in transferring the money of ancient 
times into modern money, without resorting to the distinction between 
coins and money of account. We know that the money of many modern 
nations cannot be properly appreciated without a due knowledge of their 
money of account; and can, therefore, readily admit that such knowledge 
is equally important in the just appreciation of ancient moneys. Without 
entering into this question, or vouching for the conclusions reached by Ger- 
main Garnier, we give his clear deliuition of money of account: — 

" AVe distinguish then," he says, " two kinds of money — real money, or 
coins, and money of account, which is the expression of values, or the spe- 
cification of prices. The valuation of merchandize made by the seller, the 
offer made by the purchaser, the accounts, the promises to pay, the stipula- 
tions of hiring, quotations of stocks, and the rents of farms, all that in 
every transaction precedes the act of payment, must be carried on bv means 
of money of account. Ileal money only intervenes for actual payments." — 
"The elements of which a money of account are made up consist, properly 
speaking, of arithmetical quantities, which can be mentally multiplied and 
divided." — " Real moneys consist of coins of metal, of which the form, 
material, impress and appearance may bo readily changed, without occa- 
sioning the slightest derangement in the daily dealings of society, or in 
agreements and contracts already made." — " But as to money of account 
which has no determined form, being in its nature incorporeal, it is one of 
the institutions to which people are most strongly and constantly attached 
by the powerful influences upon the mind of a habit incessantly applied to 


76 N T E S T C ir A P T E R 1 1 . 

the bi"-hest interests of cominoii life. Tlie denominations of the money of 
account, the order and proportion of its divisions, assume at lenp;th an inva- 
riable character, and remain the same during; the lapse of ages, to such an 
extent, indeed, that only more powerful influences, or great political events, 
can effect any change. The value of this money of account would have been 
not less steady and unchanging than its denominations and subdivisions, 
if the injustice and rapacity of governments had not frequently employed 
them to cheat their creditors and defraud the people, by adopting the expe- 
dient of lessening the value of coins. The people, not aware of the change 
in the coins, would continue for some time to estimate them in their money 
of account at the same price for which they passed before the debasement, 
and at which obligations and contracts were previously made. But every 
alteration in money of account has been regarded as a public calamity, as a 
source of disorders, public and private ; and it has always awakened among 
a people a general discontent. On the contrary, changes in the impression 
or the forms or denominations of coins is a common event, inflicting no 
injury upon any interest, and offending against no established habits of 
the people." ' 

This is a clear view of the nature of money of account, as well as of 
the distinction between it and coins, or real money. His success in apply- 
ing this distinction to ancient moneys has been disputed by Letronne, who, 
whatever may have been his other qualifications, as a critic of Garnier, fur- 
nishes no evidence in his work of his knowledge of that distinctiin.*^ The 
difiicultics which surround that subject are, perhaps, greater than any M'ith 
which adepts in ancient history have had to grapple. It is very certain 
that the distinction taken hj Garnier, above quoted, could not but be a great 
assistance in historical researches touching values ; and that no man can 
understand the subject of money, ancient or modern, who does not compre- 
hend the nature of a money of account. 

We would not undertake to decide upon the point in dispute between 
Garnier and Letronne. It requires something more than a full appreciation 
of a money of account to decide upon the real value of ancient moneys: on 
the other hand, it may be well doubted whether any man is capable of 
adequately mastering the subject, who does not fully understand what is 
meant by a money of account. We fear that Letronne labored under this 
disadvantage. He speaks of ideal moneys, but in no place exhibits any 
real comprehension of a money of account. He professes to meet Mar- 
quis Garnier on the ground of f\xcts alone. We enter not into the issue 
between them here ; the reasoning of both appears to be often inconclu- 
sive. Garnier adopts the idea that there was a general money of account 
prevailing extensively among the civilized nations of antiquity. Modern 

* " Histoire dc la Monnaie," par Marquis Gamier. Tome i, pp. 72 to 70. 
' " Considerations sur revaluation dcs Monnaies Grecques et Romaiiio," &c. -Ito, 
Paris, 1817. 


experience tends to contradict tliis, as every modern ration has its o-wn 
money of account, and many liave several. One of the proofs to which he 
appeals as evidence of this, is the fact that Jacob sent money by his sons 
to purchase corn in Egypt, which money was received and valued, as he 
supposed, by a common money of account. Now it does not follow, by any 
means, that because Jacob's money was received by the officers of Egypt, 
it was estimated by the money of account used by Jacob himself. British 
sovereigns may be paid for any article in France, but would alwavs be 
estimated and reckoned as so many francs. As people think in their ver- 
nacular language, so they always estimate and deal in their own money of 

Letronne, referring to the instance of Jacob's money being received in 
Egypt, very correctly says it was received by weight ; and from this he 
very incorrectly infers that there could have been no common money of 
account in the case. This plainly evinces that he did not understand the 
real nature of money of account. It is not probable that any people ever 
weighed gold or silver in payment, who had not a money of account, in 
which they expressed the price or value of the different c[uantities. In 
China, and in many other countries, gold and silver pass only by weight, 
but its value is always expressed in money of account. Whether the people 
of Mesopotamia, where Jacob dwelt, and the people of Egypt, used the 
same money of account, cannot be ascertained from the fact that Jacob's 
money passed in Egypt. All money of gold or silver will pass in China by 
weight : so, doubtless, the money of all the world would have purchased 
corn in Egypt, being paid by weight. The "four hundred shekels of sil- 
ver" weighed by Abraham, in payment to Ephron for the cave of Machpe- 
lah, was "current (money) with the merchant." 



Fvorti an Article in the "Bankers^ Magazine," of Kcio York, in ilie July and 
August Kos. of 1857, by the Author of this Volume. 


"Inquiring prices, and fixing them, occupy a large portion of the time 
and attention of all men in trade, and not a little of many others whose only 
connection with business is to purchase for the supply of their own wants. 
The conversation and discussion on the subject of prices, where no sale or 
transaction takes place, greatly exceeds, perhaps ten-fold, that which results 
in a change of property. The minds of a large proportion of the people in 
all tliriving business communities become familiar with the prices of a cer- 


taiu ranp;e of articles which they have most ocoasion to purchase or sell. 
They keep pace with the fluctuations, and are well advised when they are 
asked, more or less, for any given commodities. These respective or com- 
parative prices are readily borne in mind. Housekeepers well know the 
comparative rates of coffee, tea, sugar, rice, pepper, and other things which 
go to swell the household expenses. They know that a pound of beef is 
worth more than a pound of bread, and that a pound of butter is worth 
more than one of beef; and not only so, but they know it accurately and 
independently of any actual purchase: they know it without actually 
naming any price in money for each article. This idea of the comparative 
price of these articles is carried in their minds with perfect facility. And 
although, for facility and perfect convenience, these prices are expressed in 
money, yet any one familiar with prices could readily say a pound of rice 
is worth two pounds of flour, a pound of beef is worth four of flour, a pound 
of tea is worth eight of cofiee, a bushel of wheat is worth two of potatoes, 
and very many could run round a whole range of comparisons, showing a 
definite and precise idea of the respective prices of the articles named. 

" In all business transactions, prices are fixed and expressed in money 
of account. It forms the universal medium of estimate and comparison. 
Money of account may either correspond with the current coins or not. In 
England, all valuations are made in the terms pounds, shillings, ^?e«ce and 
favtiiings, and occasionally in guineas. The coins correspond; that is, in 
naming a pound, you express a sum or value which has an equivalent in 
the sovereign ; the shilling of account has its equivalent in the coined shil- 
ling, and so of the penny. In the United States, the money of account is 
expressed in dollars and cents, and the coins correspond. In many coun- 
tries, however, the money of account and coins do not correspond. In 
China, prices are expressed in tales, mace and candarines ; and accounts 
are so kept, and evidences of debt are written in tlie same way ; so that 
these denominations are the money of account. Coins are not used in China. 
Gold and silver are largely used in payments and morctyitile transactions, 
tut always by weight, being valued like other commodities in the money 
of account — the value or price fluctuating according to the plenty or 
scarcity, the rate of exchange, the degree of fineness, and other causes. 
There js a very great diversity in Europe in the moneys of account and 
coins; in many places there are various modes of keeping accounts, and 
various systems of coins, and no agreement among them ; in some there is 
a partial agreement. In Gibraltar, accounts are kept in dollars, which ex- 
press a value equal to about two-thirds of our dollar, and without any cor- 
responding coin, [See 'Kelly's Cambist,' ' Grund's Merchant's Assistant,' 
and other similar works; 'Austria, Venice, Genoa.'] In making a 
price, it is first, by inveterate habit, stated in the old way, and then con- 
verted, if necessary, into tiie new, as men sometimes think in one language 
and express themselves in another. So if, in Great Britain, sovereigns and 


shillings were ■wholly withdrawn from circulation, and Spanish or French 
coins substituted, the people would continue to think and value in pounds, 
{jhillings and pence until some powerful disturbing cause broke down the 
habit. It is more than half a century since the present admirable metrical 
system of weights and measures was adopted in France, with all the advan- 
tage of a decimal sj'stem ; yet the mass of the people continue to think and 
estimate under the imperfect and complicated systems which had been long 
in possession of the public mind. The idea of a specific value and quantity 
once lodged in the mind, and familiarized by daily and constant use, will 
be as difficult to eradicate as one's native language. We may learn a new 
language, but we cannot easily forget that in which we have chiefly con- 
versed from childhood, and in which we must continue to shape our ideas 
long after we may begin to express them in another. There are great 
numbers of business men familiar with the prices of a large number of the 
commodities of trade, engaged in daily discussing them, making sales and 
purchases, or quite competent to make them, yet, when produced and ex- 
hibited, wholly unable to recognise the quantities of which they speak, or 
to specify the quantity of gold or silver which is the equivalent of the prices 
they so fluently quote. They can tell you the price of a ton of iron, a hun- 
dred weight of sugar, or a barrel of flour ; but they might be wholly unable 
to tell whether a lot of iron contained one or five tons, whether a lot of sugar 
contained one or five cwts., or whether a barrel of flour contained one or 
five hundred pounds. Nor could they tell the weight or size of the quanti- 
ties of gold or silver which would be-equivalent to the prices named. The 
editor of a price-current, who is constantly conversant with prices of almost 
the whole range of commerce, and quite able, from his familiarity with 
prices, to buy and sell, may be wholly ignorant of coins, of the mode of 
weighing the precious metals, or any other commodity. When coins are 
wholly, and for a long period, banished from circulation, men find no diffi- 
culty in naming pi-ices and proceeding with the whole business of trade. In 
the United States, gold and silver are the only legal tender in payment of 
debts, and*yet not one thousand dollars of debt in a thousand millions is 
paid in those metals. Men must, therefore, be much more familiar with 
prices, and with money of account, than they are with the precious metals. 
"When a price is fixed, in the ordinary course of dealing, tlio eaming 
such a price is not the same thing as holding up to the party to whom it is 
named a quantity of gold or silver of equivalent value. When a barrel of 
flour is said to be worth five dollars, the party fixing that prict; docs not 
mean the quantity of gold in a half eagle, or of silver in five dollars, for 
that quantity he does not know, lie uses the same expression he would 
use if he were asked the value of the half eagle, ' five dollars.' So if, in 
England, an article is said to be worth fifty-five shillings, neither party 
forms any idea of the quantity of gold equivalent to that amount, although 
payment cannot be made in silver beyond forty shillings. So, during our 


Revolutionary War, -when for many years there was only a paper circula 
tion, prices were expressed in the various currencies of the different colo- 
nies, and very few indeed could have been guided by the quantity of gold 
or silver equivalent to any price expressed in their pounds, shillings and 

"It is evident, therefore, that money of account is the medium in which 
prices are quoted and expressed in all countries. It is capable of mea- 
suring, comparing and stating values to the utmost extent of the require- 
ments of trade. Much confusion of ideas has arisen from blending the 
functions of coin with those of money of account, in legislation, in works 
on the subject of money, and in conversation. It is unfortunate for clear 
views on this subject, that the money of account has not, in all countries, 
as in China, been kept wholly distinct from the coins. 

" The errors prevalent on this subject are very distinctly exemplified by 
Mr. Locke, in liis tract on money, published in the controversy on the re- 
coinage in England, at the close of the 17th century. The great philoso- 
pher had no conception of the real functions of a money of account. lie 
tells us that ' Men, in their bargains, contract not for denominations or 
sounds, but for the intrinsic value, which is for the quantity of silver by 
public authority warranted to be in pieces of such denominations ; and it 
is by having a greater quantity of silver that men thrive and grow richer, 
and not by having a greater number of denominations, which, when they 
come to have need of their money, will prove but empty sounds, if they do 
not carry Avith them the real quantity of silver expected.' ' Again: 'The 
yard or quart men measure by, may rest indifferently in the buyers or sell- 
ers, or a third person's hands, it matters not whose it is. But it is not so 
in silver. It is the thing bargained for, as well as the measure of the bar- 
gain ; and, in commerce, passes from the buj'er to the seller, as being in 
such a quantity equivalent to the thing sold ; and so it not only measures 
the value of the commodity to which it is applied, but is given in exchange 
for it. But this it does only by its quantity, and nothing else. For it must 
be remembered that silver is the instrument as well as measure of commerce. 
And every one desiring to get as much as he can of it for any commodity 
he sells, it is by the quantily of silver he gets for it in exchange, and by 
nothing else, that he measures the value of the commodity he sells.' (Page 
4, 5, idem.) 

" As the arguments and authority of Mr. Locke are greatly relied upon 
in the controversy which has been waged on this subject, it may be proper 
to state his views still more fully. After having insisted upon silver as the 
proper standard of value, and urged his objections to the double standard, 
he adds: 'One metal, therefore, alone can be the money of account and 
contract, and the measure of commerce in any country. The fittest for this 

' Page 9 of Locke's Tract. " Further Considerations on raising vahie of Money," 2d 
cd., 1695. 


use is silver. It is cnougli that the world has a^^reed in it, and made it 
their common money ; and, as the Indians rightly call it, measure, all other 
metals, gold as well as lead, are but commodities.' ' 

"If these misconceptions were not still frequently reiterated, it would 
scarcely seem necessary to refute them, as that was done at the time of 
their publication, and has been frequently since. In Mr. Locke's day, silver 
was the common medium of payment in small transactions, and he was not 
fiimiliar with the modes of payment in the large operations of trade. He 
could not distinguish between the shilling of account and the t^hilling of 
silver. Even in the 17th century, before the Bank of England emitted a 
paper currency, a large portion of the great payments of commerce were 
effected in various other ways among merchants, than by the transfer of 
the precious nietals. When Mr. Locke asserted that men did not contract 
for denominations, he simply overlooked the fact that they contracted hy 
them. They used denominations continually as a scale, a measure, or an 
instrument, in all their quotations of price, valuations and bargains, but 
only used silver and gold when they were actually present, and then as a 
oommodity and an equivalent. Mr. Locke could not foresee that, for nearly 
a quarter of a century, gold and silver almost disappeared from the circu- 
lation of England, and that, during that period, men were so far from 
always contracting for silver or gold, that no man ever expected to receive 
any payment in these metals, or either of them, lie could not foresee that 
his descendant, Lord King, would make himself conspicuous as the only 
man in the nation who insisted on being paid in gold, giving his tenants 
special notice that their rents could only be discharged in that way. Yet 
all the business of the trade and revenue of Great Britain, from 1797 to 
1822, a period of immense operations in war and commerce, was carried on 
by the aid of the denominations pounds, shillings and jjence, and bank-notes. 
The theory of Mr. Locke must fall to the ground before such an example 
as this, whatever may have been the efforts of Lord King to uphold it by 
his individual exertions.^ 

" The controversy in which Mr. Locke launched his " Further Considera- 
tions concerning raising the value of Money," would have been of still 
greater importance if it had resulted in a true solution of the question. It 
Avas, however, conducted, though with great ability, under an entire mis- 
apprehension, by both parties, of the true issue. The points started excited 
inquiry and speculation on the subject of money to such an extent, that 
England, during the last century and a half, has produced more writings 
on currency, banking and moncj', than all tlie world beside. To these may 

' Page 31, idem. His views stated shortly at page 22. 

^ Lord King published a pamphlet on the restriction of specie payments by the bank, 
in 1803, and gave the notice mentioned to his tenants. This occasioned a special act 
of Parliament, which showed that the ministry of the day understood the subject as 
little as his lordship. 


82 X T E S T C II A P T E n 1 1 . 

bo added :i liiip;e pile of folios emanatin<^ from Parliamentary Committees, 
embudyinj^ a mass of valuable facts, evidence and experience. The miscon- 
ceptions of Mr. Locke and Mr. Lowndes have never yet been cleared up. It 
•was impossible for them ever to coincide, because they regarded the subject 
from a different point of view, and, of course, with dififerent objects and 
impressions. A full comprehension of the nature of money of account was 
needed to enable them to grapple with the real diiBculties of the recoinage. 
That step had become necessary by the miserable state of depreciation into 
which the coins of the realm had sunk during the last half of the 17th cen 
tury. Owing to the natural wear, and the frauds by clipping, punching, 
sweating, and other similar means, the silver coins had depreciated from 
jive to hoenty per cent.^ The point to be settled for the action of the govern- 
ment was, whether the new coins should be issued of the original weight, 
or be made to correspond to their value at the average depreciation. Mr. 
Locke, who for the want of a merchant's familiarity with the subject of 
money, could not bring his powers of abstraction to bear, did not conceive 
of a mere money of account, but involved himself in a labyrinth of fallacies, 
by treating silver coin as the only possible money. Ilis fundamental posi- 
tions were in connection with those already cited, that ' Silver is the instru- 
ment and measure of commerce in all the civilized and trading parts of the 
world.' ' The intrinsic value of silver considered as money, is that esti- 
mate which common consent has placed on it.' 'That an equal quantity 
is always of equal value to an equal quantity of silver.'^ The last position 
is always true, saj's Ruding, except in the case of coinage, to which Locke 
applied it.'' 

" These unsound and oft-refuted positions are sufficiently plausible to 
influence many minds. The least reflection will satisfy practical men that 
silver is not the instrument and measure of commerce; it is merely one of 
the agents sometimes employed in trade, but frequently dispensed with, and 
never indispensable. The intrinsic value of silver is fixed, like the value 
of other articles, by the cost of obtaining it, by the demand for it, and by 
other causes, special and general, applicable to other commodities. An 
equal quantity of silver is not always at the same price with an equal quan- 
tity of silver, because that implies that no change ever takes place in the 
value of silver, when, at the present time, all merchants know that it does 
change frequently ; and our price-currents chronicle these changes in the 
price of gold and silver, as they do other changes in price. Entertaining 
these false notions, Mr. Locke looked upon a crown or five-shilling piece, 
or a shilling, or a Spanish dollar, as a certain defined quantity of silver, 
unalterable in value, and inseparable in idea from the silver itself. In his 
view, goods were only sold for the silver named as the price. He could not 

' "Lowndes," 60, 61. Taylor on "Money System of England," 81. 

" Pages 1, 2, " Locke's Tract." 

" Ruding's "Annals of the Coinage," vol. ii. page 42, 


understand that dollars could be said to be worth 45. Gd., is. Id., 4s. 8d., 
&c., or that crowns could be quoted, in case of a demand for silver in France 
or Holland, or in case of a high exchange, at 5s. Id. or 5s. 2d., &c. lie 
saw the confusion of terms, but could not understand why 19/^^ dwts. of 
uncoined silver should be at a higher price than a crown purporting the 
same weight; nor why an ounce of silver, at the very time he wrote, was 
selling at 6s. 5c/., when it ought to be worth only 5s. 2d., by his doctrine. 
For, formerly, when the full weight crown was worth only five shillings for 
the 19y5 dwts. of silver it contained, the ounce of silver was only worth 5s. 
2d. Silver had, therefore, apparently risen about 20 per cent. All this, to 
Mr. Locke's mind, was the merest confusion of terms, wholly unintelligible, 
the jugglery of agiotage ; fo,r with him a dollar was a dollar, a crown a crown, 
a shilling a shilling, an ounce of silver an ounce, and nothing more or less. 
He supposed that men's minds had become confused, and that no change 
had taken place except a depreciation in the defaced and dipt coins. His 
opponents saw very clearly the apparent change in value. They saw clearly 
that, as matters then stood, a crown of full weight was worth 6s. od., and 
not merely 5s., as formerly rated. ' That silver in England being grown 
scarce, is consequently grown dearer. That it is risen in price from 5s. 2d. 
to 6s. 5fZ. per ounce.' ' This seemed to them an actual enhancement of 
price. It was only apparent, however, for no such increase of price had 
taken place on the continent. The real difficulty in this question, in which 
both parties were partly right, was that neither understood nor appreciated 
the nature and functions of a money of account. The coins had, according 
to the usage of Europe, been made to correspond with the money of account, 
a correspondence which has produced unnumbered mischiefs, and stood 
darkly in the way of clear views of the subject of money. As the coins, in 
the course of half a century, gradually lost value by abrasion or clipping, 
the money of account followed, with a change which was so gradual that 
the public took no note of it. Shillings, which had lost a fourth of their 
weight, were still called shillings; crowns, which had lost a tenth, were 
still called and treated by the mass of the people as worth five shillings. 
But when, after 1690, the depreciation had reached an average of 15 per 
cent., the extent of the evil began to be felt. As soon as silver coins began 
to bo exported, upon an unfavorable exchange, they were treated as bullion, 
and valued in the money of account of the countries to which they were to 
be exported according to their actual weight. It was found at once, that 
while the great mass of the sales and transactions of the country was car- 
ried on in the old denominations, and with the imperfect coins, and these 
old denominations had gradually, in the minds of the mass of the people, 
kept pace witii the coins, the merchants in the foreign trade, familiar with 
the price of bullion at home and abroad, very clearly saw the change which 

' " Essay for Amendment oi' the Silver Coins." Lowndes, page Tk 


liad taken pliico ; that the coins were worth intrinsically less than formerly, 
and they gave Gs. 3d. for a crown of full weight. But 3Ir. Locke denied 
that thoy gave 65. 3c?., and insisted that only 5s. was given in depreciated 
coins called G.?. od., but having only 55. of silver in them. Confusion had 
invaded the money of account, and men differed about what was meant by 
five shillings. Mr. Locke insisted that the new crowns should contain the 
same quantity of silver, lOj^o dwts., as formerly, because that quantity was 
55. ; Mr. Lowndes insisted that that quantity was now worth Os. od., 
that the new crowns should contain only about 15/^ dwts., and that 
the shillings should contain proportionably, that is, one-fifth less than the 
old coinage, because he clearly saw that the whole range of prices had 
been fixed in a money of account, which had been formed upon the depre- 
ciated coins. 

" Mr. Lowndes wished to avoid the mischief of suddenly wresting back 
the money of account from its present adjustment to its former position: 
'By this project, all computations in pounds, shillings and pence used in 
accounts, and the reckonings by pounds, marks, half marks, practised in 
the law of England, and in the records, contracts, and other instruments 
relating thereunto, will be preserved as they ought to be.' ' All the con- 
tracts fur many years had been made in the money of account, as it corre- 
sponded with the depreciated coins. To require debts thus contracted to 
be discharged in coins of full weight, or their equivalent, was an injustice 
the government could not perpetrate ; and the coins were called in, imper- 
fect as they were, to be restored in new coins of the old weight. That only 
met the difficulty to a small extent, because much the largest proportion of 
the debtors had no coins in their hands to be thus exchanged. They had to 
sell goods to raise money, and their goods would sell, of course, at a depre- 
ciation proportioned to the increased value of the coins. This hardship 
was strongly urged as an objection, but in vain, as it was resolved by the 
authorities that the weights of the old coinage must be preserved. They 
believed in Mr. Locke's idea of an equal quantity of silver being always of 
equal value. The money of account, as understood and used by the people, 
was violated, and all recent subsisting contracts were in confusion. 

"The true doctrine of money of account applied to the difficulties of that 
recoinage, upon which we have dwelt at more length, with the view of 
showing this doctrine more distinctly, would have settled at once the chief 
part of the dispute, and enabled them to grapple with the real facts, unob- 
scured by a cloud of misconceptions. If the coins had been as Mr. Locke 
contends they should be, merely weighed pieces of metal of a certain standard 
([uality, the money of account would have kept its original adjustment; 
and if the ounce of silver, valued at 5.?. 2d., had lost one-fifth of its weight, 
it would have been valued at 4*. Ihd. ; and the gradual depreciation would 

' " Lowndes' Essay," &c.. page 85. Lowndes was Master of the Mint. 

N T E S T C II A P T E R I 1 . 85 

have been so imperceptible in the course of ;i series of years, as to liave 
fallen with severity upon none. The money of account would have re- 
mained intact, measuring; and expressing the value of the pieces of silver 
and gold according to their weight, with the same precision and readiness 
as other articles. In case of a rise of the precious metals, consequent upon 
a high exchange, the rise would be at once noted in the money of account 
without the least confusion in any mind. The ounce of silver which had, 
at the ordinary exchange, been rated at 55. 2d., could as easily be stated to 
be worth 55. 5d., 5s. 4d., or 5s. lOcZ. Under the proper and unobstructed 
operation of a money of account, the evil could not have taken place : that 
is, if the weight and quality in the first place had been simply certified by 
the stamp of the mint, and the price had been left to the course of com- 
merce, there would have been no inducements to clipping or punching, as 
the amount thus abstracted would have been deducted by the first person 
to whom it would have been ofl"ered ; and when the actual wear began to 
be appreciable, the loss would have been deducted in all large payments. 
In this way the loss by wear, for twenty, thirty or fifty years, could never 
be suddenly tlirown at once, with all its severitj', upon any community; 
but would be borne, in the lapse of years, by several generations of business 
men, by such slow degrees as to be imperceptible as a burden. The object 
of a recoinage would, in such a case, only be to revise the standard of 
quality, detect adulterations, and by the re-issue of pieces newly Aveighed 
and stamped, to save the people the trouble of weighing. and assaying. To 
this, neither Mr. Locke nor Mr. Lowndes, and those agreeing with them, 
could have made objection, if tliey had once perceived the efficiency and 
utility of an undisturbed money of account. It would have explained nearly 
every point of difference between them, saved the government 10 per cent, 
on the recoinage, prevented a great amount of injustice to individuals, and 
preserved the money of account at its then adjustment. It would have 
pleased Mr. Locke to have the precious metals issued by weight and quality 
only ; and it would have pleased JMr. Lowndes to have retained the signifi- 
cance of pounds, shillings and pence unchanged, as then employed to 
express the value of all the commodities of trade." 

" We may aptly introduce here a passage from a work on ' Coin and 
Coinage,' ' which denotes a clearer conception of this subject than any to 
which it was the fortune of Mr. Locke to attain. ' For all exchange is 
either by the actual or intellectual valuation of money; that is to say, 
cither the thing is exchanged for money, or, if it be exchanged for another 
thing, the measure of that exchange is, how much money either of the 
things exchanged is conceived to be worth ; and practice hath found out 
that in value, which geometricians have found out in quantities, tliat two 
lines which are equal to a third line, are equal to one another; so tho 

' By Rico Vaughan, page 3. London, 1675. 


money is a third line, by which all things are made equal in value.' Money 
of account is the line or medium of comparison by which values are com- 
pared, stated, expressed, and by which parties discharge their debts, by 
delivering as many goods into the channels of commerce as they take, 'by 
which all things are made equal.' 

"In the controversy which gi-ew out of the famed Bullion Report of 1810, 
Mr. Iluskisson published a pamphlet, ' The Question concerning the Depre- 
ciation of the Currency Stated and Examined,' ably sustaining the doctrines 
of that report, for which he was, as an acting member of the committee, 
responsible. That dispute was waged among scores of writers on grounds 
on which it was impossible they could arrive at any just conclusion. One 
party contended that, owing to the long continued wars of the French 
Revolution and of Napoleon, the demand for gold on the continent became 
extraordinary, as on such occasions it always does, and that, in consequence, 
it had risen in value. The other maintained, that the bank paper, which 
was the general currency, had depreciated to the extent of the apparent 
difference between them. Gold was quoted occasionally as high as £5 4s. 
— the usual price being £3 lis. lOhd. per ounce. The testimony of mer- 
chants, taken before the committee, decidedly sustained the views of the 
first, that gold had risen. But those who, like Locke, were unable to sepa- 
rate the idea of money from gold or silver, concluded that, as an ounce of 
gold was always equal to itself, it must always be of the same value ; and 
that, as a pound sterling is the ' unambiguous name of a certain quantity 
of coined gold or silver,' the paper must have depreciated, as the gold could 
not rise in value. No force of argument, no array of facts, could move 
them from this, as they regarded it impregnable ground. It was shown 
that other articles had not, like gold, risen in comparison with paper; that 
silver had not; and that parties were in constant pursuit of the gold for 
exportation. All in vain ; for, in the view of the bullionists, a pound denoted 
a certain quantity of gold ; and however much that gold might be in de- 
mand, it could never be more valuable than itself. Mr. Iluskisson, with far 
more knowledge of the subject than Mr. Locke, could not escape from the 
blinding effects of this error. lie was met by numerous adversaries, who 
labored under other errors of doctrine or fact, which left the question still 
unsettled. They fought the battle, indeed, on a field where it could never 
be determined. The very fact that such an array of able men applied their 
powerful minds, and in numerous instances great practical knowledge, to 
the solution of this question of depreciation, without full success — for it is 
still a matter of contest — proves there was some lurking misapprehension 
in the minds of both parties, which kept them from the true point of the 
controversy. The merchants, who contended that gold had risen in value, 
and that the bank-notes had not depreciated to the extent of the apparent 
difference between paper and gold, sustained themselves by an appeal to 
facts which would have been irresistible, except to those who could not 

N T E S T C II A P T E R I 1 . 87 

conceive of a difference in value between a pound sterling and a sovereign, 
between twenty-one shillings and a guinea. It useless to array facts 
to prove that two and two did not make four, for as clear as that did the 
bullionists conceive their position to be. 

" In the years 1811 and 1812, two publications appeared, in which the 
doctrine of money of account, misnamed Abstract Currencies, was applied 
•with much discrimination and clearness to this question.' No reader of 
these works can fail to perceive that the elements introduced by them into 
the discussion are indispensable to a fair understanding of the subject, and 
especially to a safe solution. It was shown that gold had risen, and that 
the money of account, which continued to correspond with the bank paper, 
measured that rise in value. As soon as the paper ceased to be convertible 
into gold, it ceased to fluctuate in value with gold, and became a medium 
of exchange or currency, of which the money of account was the expres- 
sion. But we can neither quote from the close-woven pages of Mr. Wilson, 
nor attempt an abstract, as he follows up the thread of fallacy alleged to 
run through the doctrines and arguments of the bullionists with a steady 
perseverance, and in such an unbroken chain, that it is difficult to detach a 
link. No mind open to the truth, and sufficiently disciplined to the labor 
of close investigation, can read these pages without perceiving that the doc- 
trine of an abstract money of account has found an advocate few would 
venture to assail, or could hope to overcome. We are not aware that any 
reply to Mr. Wilson's publications ever appeared. 

" We cannot omit, in our mention of those who have supported the true 
idea of a money of account, a publication which appeared in Philadelphia, 
in 1832.''^ In this pamphlet the whole subject is ably and fully handled, 
and, as a single treatise on this subject, is more suited for popular reading 
than any yet published. In summing up his conclusions at page 62, he 
lays it down : ' That value in exchange was originally altogether compara- 
tive ; one article being compared with another. That, to enable this to be 
done, it was found absolutely necessary to assume an intermediate imagi- 
nary point of comparison, and that this point of comparison is to be found 
in use in all countries.' He says this is used to express the value of coin, 
as well as of other commodities. .He compares it to the assumed point in 
algebra; to the imaginary points of the north and south poles; to the 
imaginary line which is drawn for the meridian ; to the degrees of latitude 
and longitude. By these lines ships are guided thousands of miles over a 

' " Defence of Abstract Currencies in reply to the Bullion Keport and Mr. Huskis- 
Bon:" By Gloucester "Wilson, Esq., F. U.S. London, 1811. "A Further Defence of 
Abstract Currencies :" By the same. 1812. Mr. Wilson was a barrister. 

' From the press of Jespcr Harding : Svo. pp. 76. The copyright is secured by 
Thomas Smith. The pamphlet is otherwise anonymous, but in the introduction the 
writer speaks of himself as a foreigner. Can he be the same Thomas Smith whose 
works on the Theory of Money we have already notieed ? Ante, note, page 67. 

88 N T E S T C H A P T E R 1 1 . 

trackless ocean, and an unerring account of the track is kept; and few 
ship-owners would be willing to intrust the care of a ship to a master who 
should declare that he would take no charts to sea, as they were nothing 
but imaginary lines drawn upon paper.' 

"We find a clear expression of the doctrine of money of account in a 
report made to Congress in the session of 1830-1. ' Nations generally esta- 
blish a measure of value, founded upon an ideal unit or money of account 
and contract. Coins regulated in conformity to this standard usually com- 
pose the metallic cuiTcncy, and they are generally the only legal tender in 
payments. The stamp set upon the metal is the seal of the State, certify- 
ing as to the fineness and weight of the coin ; and the money unit, or its 
integral parts or multiples, being exhibited in every coin, facilitates enume- 
ration, exchanges and payments,' &c. 

" There is a point in the history of our government from which this sub- 
ject can be studied with advantage. The subject of the establishment of a 
mint was brought to the notice of Congress as early as 1782, by Robert 
Morris, 'financier' to the confederation, in a report submitted by him on 
the 15th of January of that year. This was not acted upon, and the sub- 
ject was referred to Alexander Hamilton, Secretary of the Treasury, in 
April, 1790, who submitted an elaborate report on the 28th of January, 
1791. These important papers are accompanied by extended notes of Mr. 
Jefferson, as they are found at large in American State papers, vol. vii., fol. 
ed., p. 91. No previous coinage of any importance had existed in the 
colonies; Spanish coins were almost the only kind in circulation; an ex- 
cessive derangement in the money of account in the different colonies had 
occurred ; and the fact was constantly exhibited of merchants counting 
by pounds, shillings and pence, and paying in Spanish coins. This was 
felt to be very inconvenient, after the affairs of the Revolution, and the sub- 
sequent intimate connection of the colonies, had blended their business, and 
increased their mutual trade. The desire for a uniform system became general. 
It is evident, from, the whole tenor of the documents last referred to, that 
these eminent men understood clearly enough the distinction between the 
money of account and money in coins. Mr. Morris desired to retain the 
moneys of account strictly as they then were, and sought a unit for the con- 
templated coinage, which would be a common divisor for all. This divisor 
was the l-440th part of a dollar, of which 24 would be a penny of Georgia, 
15 of New York and North Carolina, 20 would be a penny of Virginia and 
New England, and 16 a penny of Pennsylvania, &c. His coinage was to 
be founded on this minute unit, as follows: — 

' Thero is, in all this illustration, the want of a clear statement that the unit must 
have an ascertained power or value, derived in the first instance from articles used as 
money, and from that fixed by use in the minds of the people. 


10 units to be equal to one penny. 
10 pence " " one bit. 

10 hits " " one dollar. 

10 dollars " " one crown.' 

This dollar would have been two-thirds of the Spanish dollar. Under this 
coinage, it was supposed the people would continue their old habit of count- 
ing and estimating by pounds, sliillin<:5s and pence, and that tlie new coins 
would be valued in the same way as the Spanish coins had long been. Mr. 
Morris understood the difficulty with which people changed their habits 
of mental reckoning and fixing prices, and therefore deemed it safer to 
change tlie coins than the nionej'^ of account, even though the systems in 
the several States were so various. His coins were not only to lie paid as 
equivalents in value, but convenient, in small transactions, as counters or 
assistants in reckoning, from their decimal subdivision, and from carrying 
on their face evidence of weight and quality. 

"Mr. Hamilton expressly recognises the distinction between the unit of 
the money of account, which he says, is ' the pound in all the States,' and 
the 'unit of the coins,' which is 'not so easy to pronounce,' but which he 
considers to be the dollar. He recommends the adoption of the dollar as 
the unit of the coins as well as of the money of account, the more especially 
as the people were prepared for it by the circulation of tlie Spanish coins, 
and by many of the financial operations of the Ilevolution. Mr. Jefferson 
coincided with the Secretary of the Treasury, and recommended the adop- 
tion of the dollar unit, and the coins issued ever since. 'A required condi- 
tion of the unit is, that its multiples and subdivisions coincide in value with 
some of the known coins so nearly, that the people may, by a quick refer- 
ence in the mind, estinialc their value; and, if tiiis be not attended to, they 
will be very long in adopting the innovation, if ever they adopt it.' — 'Am. 
State Fap., Finance,' vol. vii., p. 105. ' The unit or dollar is a known coin, 
and the most familiar of all to the minds of the people. It is already 
adopted, from North to South, and therefore offers itself as a unit already 
introduced. Our public debt, our requisitions and their apportionments, 
have given it actual and long possession of the place of unit.' — 'Ibid. Fi- 
nance,' vol. iii., p. 105. 

"These valuable papers clearly recognise the distinction between the 
functions of a money of account and a coinage, though, in maiiy respects, 
there is a want of that precision in their views, which nothing but a long 
familiarity with the subject could give. Hamilton and Jefferson seem to 
take it for granted that the coins should correspond with the unit of account. 
Morris did not deem that necessary, because, undoubtedly, ho understood 
the matter better than either of them. For want of knowing more, how- 
ever, his plan was certainly inferior, on the whole, to that they proposed. 
It would have been a happy time to adopt a coinage recommended since 
and bef ire, by many eminent men. The standard of quality being fixed, 

90 N T E S T C 11 A P T E R 1 1 . 

the precious metals to be coined into Troy pounds and decimal parts of a 
pound, ounces and parts of an ounce, and the dollar being adopted as the 
unit of account, with a decimal subdivision, these pieces of the precious 
metals would be readily valued in this money, following all these fluctua- 
tions. A coinage intended specially for small transactions of half-dollars 
and under^ would have been advisable to bo a legal tender, not beyond ten 
dollars. The fact that the legal tender of gold or silver, in large transac- 
tions, is a very rare occurrence — few people having ever seen it resorted 
to — shows that it should not be the rule, but the subject of exceptional 
regulation. Tlie precious metals finding their value according to the mar- 
ket, could not disturb the steadfastness of the unit of account, which would 
perfectly register and express every variiition in them." 



From cm Article, hy the Author of this Volume, in " Hunfs Merchants' 
Magazine," of April, 1852. 


"When an Englishman visits the continent, he carries in his mind his 
own money of account, and by its aid values every coin he meets ; he ex- 
presses that value in the terms which are most familiar to him : thus the 
foreign price of every article can only be realized when mentally turned into 
pounds, shillings and pence. The foreign coins he carries in his pocket 
are all measured in that way, and it will require a long familiarity with 
foreign prices before he can think in any money of account but his own. 
The mental operation is similar to what he uses in learning to speak a 
foreign language ; he thinks first in his own what he may express after- 
wards in a foreign tongue. If the English traveller is familiar with the 
home prices of articles submitted to him abroad, he will, without hesitation, 
annex prices to all the foreign goods he sees in English money of account. 
He does not, in this instance, use his domestic coins as a measure of value; 
the operation of fixing such prices is not a comparison of his domestic 
coins with the foreign goods ; it is the expression of their value in English 
money of account. 

" During the time of the suspension of payments by the Bank of Eng- 
land, between 1797 and 1822, such was the demand for gold on the conti- 
nent, for army purposes, that it became, for most of that period, merely an 
article of commerce, in great demand for export." . . . 

It must be perfectly plain to those who are familiar with the history 


of that period, that if every coin of gold and silver had been swept by the 
foreign demand from that country, the people ■would not the less have con- 
tinued to transact their business and make payments in pounds, shillings 
and pence. So they would have done, also, if platina had been introduced 
as a medium of payment. A whole generation of men came into business 
during this suspension, who were not familiar with coins, and seldom even 
saw a guinea or a sovereign ; vet they never had any difficulty in buying 
and selling by pounds, shillings and pence. Did they, in every instance, 
use coin as their measure of value? 

"Does the active salesman, who is continually naming prices from morn- 
ing to night, carry the image of the silver dollar in his mental vision all the 
time ? Suppose, when he pronounces the price of a bale of goods to be two 
hundred dollars, that amount of silver coins were thrown before his asto- 
nished vision, he would be very apt to say: 'Carry them to the bank or the 
broker; I am no judge of coins; they may be too light, or they may be 
counterfeit, for aught I know.' The purchaser may reply: ' Take them by 
weight, and return any that may be condemned as false coins.' But the 
answer would be, in almost every such instance: 'I know not the value of 
a pound; ounce, pennyweight, or grain of silver.' Did this merchant mea- 
sure the value of his goods by coins ? Let us suppose this lot of miscella- 
neous coins to be carried to the counter of a dealer in the precious metals ; 
it will be immediately inspected, classed and valued in dollars, precisely as 
the merchant valued his goods. Some dollar coins may be worth one dol- 
lar, and one, two or three cents; some worth one, two or three cents less 
than a dollar: the various classes into which they may be assorted will be 
separately valued, and the whole being added together will make the sum 
which the broker is willing to give for the lot. It is soon sold and paid for 
by a check on the bank, which pays the merchant for his goods. Now, 
was not this parcel of coins valued in the same way as the box of prints, 
and were not both equally indebted to the efficiency of the money of account? 

"If it be alleged that the merchant and broker had each a reference, in 
their minds, for the purpose of expressing their several valuations, to per- 
fect dollars, we ask how they could thus carry the idea of a dollar so per- 
fectly as to exceed in accuracy the ordinary coins of circulation. If men 
can carry the value of the perfect coin in their minds, then that is what is 
called 'imaginary money,' or money of account, by the Cambist. 

" Take another case of a bale of goods, priced, sold, and paid for, in what 
appear to be new and perfect dollars. It would bo said, by those wi:o take 
that view of the subject, that the value of the goods was measured by the 
coins which were used, as an equivalent in paying for them. But the coins 
are all counterfeit, and so perfect that they circulate a long time, perform- 
ing all the functions of money, without injury or loss to any one except 
those in whose hands the falso.coins are at last detected. In this instance, 
every article paid for in these coins would have been valued in false money; 

92 N T E S T C II A P T E R 1 1 . 

and as every dollar mi2;!it liavo been paid a liundred times without injury 
to any except the last holder, the rather stranj^e conclusion must be drawn, 
that false coins are equally efficient in nieasuriii;;; value with the genuine. 
This will hardly be admitted, and we are driven to the conclusion that it is 
the ideal dollar of our money of account — tlie value of our money unit 
clearly understood and firmly settled in tho minds uf tlio people — that is 
applied without hesitation at all times, and by everybody, to measure the 
value of every article of sale, or susceptible of valuation, whether goods, 
coins or bullion. 

"Our ancestors brought with them to America the English money of 
account, and their posterity continued thus to employ it until the present 
system was adopted by our government after the Revolution. But a money 
of account cannot, even by legislative authority, be created nor destroyed 
in a day. The English money of account maintained its supremacy ia 
terms, though greatly changed in signitieation, through a long period, 
although almost the only coins in circulation were Spanish dollars, and 
halves, quarters, eighths, and sixteenths." — "It is yet partially used in the 
interior of Virginia, South Carolina, and perhaps Massachusetts. In New 
York the term shilling holds its ground generally to this day, owing, in 
part, to the shilling there corresponding in value with the Spanish eighth 
of a dollar. These colonial denominations varied so much, that in Massa- 
chusetts a half-dollar coin was valued at three shillings ; in New York, at 
four shillings ; and in Pennsylvania, at three shillings and ninepence. A 
merchant of the last-named State was, sixty years since, just as prompt in 
affixing prices to his goods as one of the present day ; the former could 
employ the Pennsylvania currency just as readily as he of this day uses 
dollars and cents. The former had in his mind no coin corresponding with 
his 2^011 lid, his shilling, or his penny. There was no such coin: nor could 
he have in his mind, as the measure of value, any corresponding weight of 
silver or gold, because very few indeed knew the value of either metal by 
weight. It is impossible to think or say that the merchants of that day 
measured or Istimated the value of their goods by mental or actual refer- 
ence to coins, for there was then none such, and never had been. This 
colonial money of account was a purely ideal scale, the power or value of 
which was fixed in the minds, and its use in the habits of people. What 
was so long true of our colonial currency, is to this day true of the Cana- 
dian money of account, which has no corresponding coin — the British shil- 
lings, and Spanish and American coins circulating there, not corresponding 
with their money unit. It is worthy of remark, too, that the French popu- 
lation of Canada still preserve the money of account which their ancestors 
brought over with them, and which has long been out of use in France, 
namely, livres, sous and denlers. There have been no coins corresponding 
with this unit and its parts to keep up the memory of this money of account, 
to confirm its use, or to explain its meaning. 


" It -would be endless to bring illustrations of our meaning from the 
moneys of account of Europe and Asia, as every country ^Yhere industry 
has flourished, or commerce been active, furnishes proof that the same 
habit of converting the denominations of coins into a mental scale, for com- 
paring and expressing values, prevails everywhere — in China and Persia, 
and the East Indies — equally as in the more civilized nations of Europe. 
China has no coinage, and gold and silver are there sold constantly at their 
market value, and -weighed out in payments, the amounts of which are 
expressed in the money of account. 

"But we need not continue these details further, at this stage of our in- 
quiry. It is proper to say that we do not bring forward this use of the 
money of account as a standard of value, or as what some have called an 
abstract currency. It is no standard of value, nor is it a standard of any 
kind; nor can it, without an abuse of terms, be called a currencj'. Its use 
neither dispenses with a standard of coinage, ntir with devices for payment, 
institutions of credit, nor a paper currency. It is the popular expression 
of value. Coinage furnishes the legal equivalent. 

"A money of account, well established in the Iinbits and minds of the 
people, is a thing of slow growth, and cannot, therefore, be created by law. 
Our National Legislature enacted that the dollar shouM l)e the unit of our 
money of account, and immediately the public accounts were translated 
into dollars and cents; but manjf years elapsed before dollars and cents be- 
came, in flict, the money of account — the popular measure, or scale of 
value, in the sense in which we use the term. If Congress were, by another 
act, to require that all business should be transacted in francs and centimes, 
it would require nearly half a century to make the change in the minds of 
the people. So far as legislation is concerned, such a change could be 
made in a day ; but long familiarity with the terms, in all the circles of in- 
dustry and the avenues of trade, can only establish the precise power and 
force of these terms in the minds of the masses. 

" If we reflect that the annual product of our industry, agricultural and 
manufacturing, in the United States, exceeds three thousand millions in 
value, and that, on the average, these products are sold many times, and 
that this mighty mass of valuables is, to its whole extent and in all its parts, 
put at prices fixed in our money of account, and that an incessant valuation 
is going on in the infinite operations of trade and industry, we must admit 
that anything which introduces confusion into such an immensity of busi- 
ness must be an incalculable evil. It falls far short of the reality, if we esti- 
mate the successive valuations or prices fixod on goods sold and unsold 
every month, in the United States, at over a thousand millions. A mis- 
take of one per cent, on this vast sum would be a disturbance on the whole 
to the extent of ten millions. If our government were to require us hence- 
forth to keep our accounts in francs and centimes, making no other change 
in 0U4- money system, tlie di.'^turbancc created would be a matter of incon- 

94 N T E S T C II A P T E R 1 1 . 

venience, the amount of ■which must be measured by the immense transac- 
tions it would affect, and the necessity of convertins; such an infinity of 
sums of money from doHars into francs. But the change would not be con- 
fined to mere inconvenience, for many of the ignorant, the dull, and the 
unwary would become the prey of the designing and crafty. There can, 
of course, be no adequate estimation of the mischiefs which such a change 
of our money unit would inflict; and surely nothing can justify such legis- 
lation, except greater evils were threatened from the other side. The 
grounds of our national adoption of the dollar unit were not merely its con- 
venience and superiority ; for, strong as are these reasons, they might have 
failed to overcome the opposition to a change ; it was the necessity of har- 
monizing the differences of the money of the several States, which made 
the adoption of a new unit, which should be common to all the States, a 
matter of imperative obligation. And the free communication among the 
States, with different modes of computation, having among them the same 
legal money unit, was what efficaciously hastened a complete compliance 
with the law. The new money of account was a language into which all 
the varying languages of computation could be translated. When men of 
Massachusetts and Pennsylvania were accounting together, instead of a 
mutual transfer of their accounts into their respective currencies, they were 
both changed into federal money, and thus adjusted. The necessity of 
doing this constantly, among those residing in different States, greatly 
assisted and hastened that otherwise slow process of displacing one money 
of account by another. The inconvenience was less felt and complained of, 
because it was really not so great as that which they endured under the old 
diversified systems. 

Disturhance of the Moncij of Account Jjy open and hj concealed attacks. 

"But if the change of a money unit, under the most favorable circum- 
stances, and for the strongest reasons, is productive of so much inconve- 
nience to all, and risk of imposition upon the unskilful and unwarj', what 
must be the effect where the change is not merely from one unit to another, 
but a concealed or unseen attack upon the unit itself? what the effect, 
if resulting from the enforcement of such regulations, as tend to 
change the value of the unit, aud produce confusion in regard to it in the 
minds of those employing it? Instances of this kind of change are bub 
too familiar to readers of the histories of European countries, in the frauds 
perpetrated by mistaken or unscrupulous rulers, in the successive debase- 
ments of the current coins. In England this has been done until the equiva- 
lent of the money unit five hundred years ago, and that of the present day, 
is as thirty-two to ninety-nine: they coined originally, including the alloy, 
£1 Is. 4d. from a pound of silver ; since 1816, they coin £3 (Js. from that 
quantitj- of silver. In France, the debasement has proceeded so far as the 
rate of seventy to one. The evils and losses inflicted upon the respective 

N T E S T C H A P T E R 1 1 . 95 

countries in which these abuses were practised can never be adequately 
estimated. Measured by the mere inconvenience they imposed, great as 
that was, no just idea of the mischief could be attained. A more correct 
estimate may be drawn from the cries of distress which came from all 
quarters on the occasion of these debasements. Volumes might be filled 
with the complaints caused by the iniquities of this process of debasement. 
In France a heavy tax was agreed to be paid on condition the coinage was 
permitted to remain undisturbed. It is true that, in the periods when these 
debasements were most resorted to as a means of raising money, neither 
rulers nor subjects fully understood the true nature of the evil, although its 
results were felt by those whom they aifected, so as to leave no doubt about 
the injury. The functions of a money of account were not known, as they 
arc not sufficiently appreciated even to this time. The whole of the mis- 
chief was, in those cases, imputed to the change of the coinage, because 
that Avas the occasion. No debasement, however great or well managed, 
could much injure those who were knowing enough to detect the fraud, or 
in a position to discover it. They could readily perceive that the new 
coin which purported to be a shilling, and which the authorities required 
to be so called, was in fact worth only ten pence ; and they could take their 
precautions accordingly. Eut the mass of the people, who could not dis- 
tinguish the shilling of their money of account from a shilling coin, would 
continue to count, and fix their prices, and make their sales in the usual 
shilling of account, and receive payment in the debased coin. Their eyes 
would only be opened after the fraud was complete, and after the perpe- 
trators had extracted a large sum from the public ; and after merchants 
and bankers, shrewd enough and unscrupulous enough to avail themselves 
of the opportunity, had levied a tenfold larger sum. This process of break- 
ing up or destroying a money of account is one of fraud and misconception, 
where all parties to a transaction are ignorant of what has been done; they 
speak in one language — the law, under which they act, speaks in another; 
they make their prices by one scale — the law exacts payment by another. 
Where, as would soon bo extensively the case, one party comprehended the 
change, and the other did not, a direct advantage could be taken to the 
extent of the depreciation. Such debasements destroyed the money of 
account, because the base coin was made a legal tender for its nominal 
amount of valuation in the money of account. The ignorant and unwary 
were therefore preyed upon until the extent of their losses finally opened 
their ej'es, and the speculati(m became no longer available. The prices of 
all articles would become enhanced to the amount of the debasement, and 
that being the case, anew money of account would gradually bo established, 
as habit rendered the new unit familiar. It must not be overlooked, that 
the success of this kind of fraud depended on the fact that the money unit 
in use, where the fraud was attempted, was so firmly fixed in the minds of 
the people, that they would continue to compute by it after the alteration 


in the value of the coin. The success of the fraud would come to an end 
as fast as the new money of account replaced the old one. The law which 
made the debased coin a tender at its former value would cease to be effec- 
tive when all prices were fixed by the new scale. It is well known that 
men of business had such a dread of the confusion, trouble and loss ensuing 
from a debasement, that they stood aghast at the prospect or mere suspicion 
of such an event.' 

Effect of a change in the value of the precious Metals on the Money of Account 
— Law of legal tender — Depreciation of Paper Currency. 

" There is another way in which a monetary unit may be changed, which 
it is important to consider, and that is, by a change in the value of the pre- 
cious metals of which the coins most in use are composed. It is by no 
means a necessary consequence ; but unless the danger is seen, and precau- 
tions taken, there is always hazard of the money of account being disturbed 
where the ordinary coins of circulation change their value gradually, and 
from causes not generally appreciated. This danger is always greater where 
the name of the money unit is the same with that of the chief coin — as in the 
case of our two coins, gold and silver, each called a dollar. If the silver in a 
dollar coin should depreciate by degrees imperceptible to the mass of men, 
the unit would alter by a change following at, a long interval from the de- 
preciation. During this time a harvest of profit would accrue to those who 
were shrewd enough to perceive the alteration, and fortunate enough to be 
in a position to avail themselves of it. Its operation would of course be 
very unequal ; the advantage and disadvantage to some might be equal; 
many might suffer severely without understanding the reason; and some 
might be profited without knowing how. The whole mass of transactions 
occurring within the range of this depreciation, the prices fixed upon all 
commodities for sale, the contracts of sale, the actual payments in coin, the 
whole position of debtors and creditors, their books of account, evidences of 
debt and securities of credit, would be more or less affected. There could 
be no certainty that the parties to these transactions perfectly understood 
each other. It might very frequently be a matter of accident or chance on 
whose side the advantage would fall; but it would be very certain that 
those who understood tlie process of depreciation would have power to turn 
the whole event very greatly to their profit. 

"We say that the money unit would sufi'er even where it did not corre- 
spond in name with any coin ; we mean, of course, where there is a fixed 
price on the precious metals, and a law of legal tender. Wherever neither 
of these circumstances exists, as in China, where great fluctuations in the 
value of gold and silver occur, there such changes have no effect whatever 

' See the note at page 35, "Snelling on the Coins of Great Britain, France, and 


upon the money of account. In China, the value of gold and silver can 
always, in any variation, be expressed in tales, mace, candarines and cash; 
and so in England, if the statute making gold a legal tender at £3 175. 10|(?. 
were repealed, the value of gold could be expressed under any possible de- 
gree of variation in pounds, shillings and pence. So, if our law making 
gold a legal tender were repealed, we should have no difficulty in express- 
ing its value in dollars and cents, at any possible depreciation to which it 
might descend under the effect of the influx of that metal from California 
or Australia. But when the law compels men to take gold at a fixed value, 
and coins are issued in gold which are made a legal tender at one dollar, 
five, ten, and twenty dollars, the mass of men will be slow to perceive any 
depreciation of a coin which the law holds at the same value. They can 
only discover the change by a long process of selling at the old value, and 
being paid in the new; whilst very few will enjoy the equivalent advan- 
tage of buying by the old scale, and paying by the new. 

" The unit of valuation may be disturbed and destroyed by the deprecia- 
tion of a paper currency which enjoys the whole circulation of a country. 
If such a currency is once established in the confidence of a community, so 
as to be received in all business transactions at par with the unit, or as 
equivalent to coins of known value, it may decrease by such imperceptible 
degrees, and from such unseen causes, as gradually to cause a general rise 
of prices corresponding to the stage of depreciation. This of course, de- 
stroys that money of account, and gradually substitutes another; but the 
process is fraught with all the mischiefs and confusion attendant upon a 
change in the value of gold and silver. 

"This was that which was alleged to have taken place in England in the 
period of suspension of payments by the bank between 1809 and 1815, 
when at one time, as we have already mentioned, gold reached the very 
high price of £5 4s. And it is still urged by some in that country, that no 
more unjust nor impolitic legislation ever took place than that which 
restored the unit of account to its original place compared with gold. But 
the very heated controversy which took place within the period above-men- 
tioned, is one of tliose in which the calm observer of later days, looking 
through a less prejudiced medium, can clearly perceive that there was 
much truth and error on both sides ; and that their differe«ces were of a 
nature that no element employed in their discussion could enable them 
properly to reconcile or determine the preponderance. No doubt there 
was some depreciation of the paper of the Bank of England, but not by any 
means corresponding to the price of gold, the demand for wliicli was in- 
creased, owing to many special causes, but chiefly to the wars raging on 
the continent. After the battle of Waterloo, as the affairs of the continent 
gradually resumed a state of quiet, gold fell by degrees to its average mar- 
ket rates. 

"If the strenuous efforts which wore put forth at the period of this con- 


trovcrsy had been in part directed to preserve the money of account intact, 
rather than to an angry and excited discussion upon the question wliether 
gold had risen or bank-notes had fallen in value, more light would have 
been shed upon the subject, and ninre real good accomplished. The publi- 
cations of this period, and the Parliamentary reports, form the most valua- 
ble mine of instruction on the subject of money and credit anywhere 
extant, but far too voluminous to be more than merely referred to in this 

" Tlie money unit of the American colonies was destroyed and diversified 
by a process the opposite of the depreciation of the coin. The long con- 
tinuance of an unfavorable exchange with England in most of the colo- 
nies begot a constant and pressing demand for coin as a remittance. The 
exports of the colonies were insufficient to furnish bills of exchange for ad- 
justment of the large indebtedness to the mother country, created by inces- 
sant over-importation. The only possible mode of discharging a large por- 
tion of this foreign debt was by the exportation of coin. The demand thus 
arising continued so long and so urgent, that the value of coins began and 
continued to enhance, through a long series of years; the scarcity became 
so great, that the colonists suffered severely for some medium of exchange, 
and were driven to various strange expedients, and not unfrequently to a 
state of barter, in which the commodities to be exchanged were valued in 
the money of account: that is, all payments were made in the commodities 
exchanged, whilst all prices were fixed in the money of account. During 
this period, Spanish dollars and fractional coins, under this special demand, 
rose in value, and increasing prices continued to be expressed in the usual 
money of account. The dollar, which at first was worth 45. 6d., became 
worth 55., 5s. GcZ., 65., 65. G(?., Is., and 75. &d., in Pennsylvania; and in 
New York it went to 85. It is true that, in some colonies, this process was 
complicated with an excessive issue of paper currency. In such cases, it 
may not be practicable to estimate the respective influences of the unfavor- 
able exchange and consequent demand for coin as an article of export, and 
that of the over-issue of paper currency ; but that both causes had their 
appropriate result is easily seen, and the more especially as they were not 
always contemporary. In some of the colonies no paper was issued, and in 
them the unfeivorable exchange destroyed not less effectually the money 
unit; and in some of the colonies the original money unit was changed 
before the issue of the paper currency. It should be noted that neither an 
unfavorable exchange, nor an over-issue of bank-notes necessarily involve 
the destruction of the money of account. Where there is a regular place 
for the transaction of exchange, and regular quotations of the rate of ex- 
change made public, there the nature of the demand for coin is at once 
seen and understood, and the price of coins nearly keeps pace with the 
price of exchange ; both coins and bills of exchange being rated, in the 
terms of the money of account, at what they were worth. There was riji 


regular price for exchange, .nor were there regular dealers in exchange in 
the early days of our colonial existence ; and the mass of the people did not 
comprehend the true nature of the demand for coin. Hence, as coins almost 
disappeared from circulation, and as a high nominal price was continually 
bid for them, the prices of other commodities fell into a state of confusion, 
and all harmony of adjustment was gone ; for few could tell whether prices 
referred to an equivalent in coins, or an equivalent in other commodities. 

" So in the case of paper issues ; its depreciation does not necessarily 
imply injury to the money of account ; for where there is good paper with 
which to make comparison, it may be quoted, paid and received at any 
rate of discount agreed upon, from 1 to 99 per cent. — a fact familiar to all 
men of business in the United States. 

Glance at the Causes ichicli introduced the j)resent Coinage System of 
Great Britain. 

"Before examining our own system of coinage in reference to modifica- 
tions which may seem to be advisable in any aspect of the subject, it may 
be profitable to glance at the steps by which Groat Britain was led to adopt 
the gold standard. Previous to that change, the double standard had pre- 
vailed, and for more than a century had been a source of perpetual trouble 
to individuals, and loss to the nation. The mischief began before the com- 
mencement of the eighteenth century, by the rapid disappearance of silver 
from the circulation. This process was due to many causes, but chiefly to 
the over-valuation of silver at the mint of France. This carried off all the 
heavy silver coins, and left those most worn to perform an increased duty 
in the circulation, whereby they very rapidly became more and more de- 
faced and deficient in weight. The evil became, at last, insufferable, and 
brought on a discussion, in the reign of William and Mary, as to the best 
remedy. In this discussion the celebrated John Locke took a conspicuous 
part. The government — very honestly, as its members thought, but very 
unwisely, as it has since been regarded — undertook, in the face of this 
foreign demand for silver, to recoin the whole silver currency, and to make 
it of full weight, but without due precaution. Whilst this light currency, 
depreciated in weight from 10 to 25 per cent., passed by tale, it could not 
bo exported, because the over-valuation was not equal to this depreciation. 
The recoinage increased the evil, for it exactly prepared the coins for ex- 
portation, by making them full weight, without increasing their home value 
as a legal tender. So the mischief continued, in more or less force, through- 
out the whole of the 18tli century. The efi"cct was to introduce gold into 
circulation in place of the withdrawn silver. The extreme fluctuations of 
the gold which was thus drawn so largely into the channels of trade, pro- 
duced great inconvenience, and kept up bitter complaints. So inefficient 
■were the means employed to keep the silver in circulation, all Ijut the worn 
and light coins being constantly withdrawn and exported, that in 1797 the 


further coinage of silver was forbidden. A century of experience, and an 
immense sum wasted in coinage, bad sufficed to sbow tbat tbey could not 
by mere coinage, countervail the laws of trade in bullion. The sum of the 
matter was, that they over-valued gold in England, and silver in France; 
and that, by consequence, France could not keep gold, and England could 
not keep silver. In the progress of the 18tli century, the scarcity of silver, 
with the influx of gold and its variations — the guinea varying in price from 
thirty to twenty-one shillingH and sixpence — completely unsettled the 
ancient money of account, and formed a new one upon gold: that is, the 
plenty of gold made the people by degrees more familiar with its value than 
with the value of silver; and thus a new money of account began to form 
upon gold. This was perceived as early as 1774, when silver was declared 
no longer a tender, except by weight, beyond £25." 


§ 1. Gold and silver a common equivalent or medium in the inierchange oj 
commodities — Circulation by weight — Not constituted money by coinage, 
tohich only facilitates circrdation — Diversity of mints, and confusion of 
coins — Wear and waste — Clipping, fling, SKcating and counterfeiting. 

We have been thus full in the treatment of money of account, 
its nature and functions, that the distinction between it and 
coins or bullion might not for a moment be lost sight of in the 
subsequent discussions of this volume. We have seen that the 
money of account occupies the whole ground of the expression 
of prices ; the ■whole ground of books of account, so far as prices, 
amounts or sums of debt or credit are stated in them ; the whole 
ground of the statement of sums or amounts in bonds, notes or 
bills of exchange, checks, and other securities ; the whole ground 
of financial estimates, statements and computations ; in fine, all 
that relates to money, where actual equivalents are not employed, 
belongs to the domain of money of account. The formation of 
a money of account, w^hich invariably occurs among all trading 
people above the condition of savages, takes away at once from 
gold or silver, whether coined or weighed, all application or use 
as a measure of price, or medium of comparison. Among 
savages, the precious metals are no doubt directly compared with 
the articles for which they are bartered : with them it is, lite- 
rally, so much of one thing for so much of another. It is not 
so in civilized life, where commodities are very seldom sold 
with any thought of payment being exacted in gold or silver. 
The money of account not only serves, to this extent, the use of 
coins or bullion, but it saves even any actual reference to them; 
it is, therefore, an immense economy in trade. It narrows the 
use of the precious metals, perhaps, more than any other agency. 



It makes the credit system possible. This diminished use of the 
precious metals indicates vast progress in industry and trade. 
In the forming stages of society, it may be necessary to employ 
the precious metals in almost every transaction. As commerce 
is now carried on in Great Britain, and in the United States, 
the use of coins or bullion does not extend to the thousandth 
part in value of the business ; but though the proportion in which 
they are used is so reduced, they are none the less prized, and 
still remain that common equivalent with ■vfhich every other com- 
modity can be purchased. Although very little employed in 
large purchases, because they can be dispensed with, they are 
the only articles which every one is at all times willing to take. 
Their chief office is in the payment of balances of trade. When 
two nations, or two provinces, or districts, or individuals, trade 
with each other, their mutual debts may be set ofl' against each 
other, in the ordinary course of business, so far as equal ; but 
the balance either way is payable only in gold or silver, because, 
where other articles of export fail, these are always acceptable 
in discharge of any debt, domestic or foreign. 

Small as is the proportion of the precious metals to the whole 
value of commodities exchanged, yet being employed in the retail 
dealing, and made the only legal tender in payment of debts, 
their use is not only familiar to the public, but creates a vague 
impression that all dealings and prices have a strict reference 
to coins, or specific quantities of gold or silver. We have 
shown that this is an erroneous impression : they are seldom 
referred to when the term money is used. Gold and silver are 
only referred to in dealing, when the actual intention of the par- 
ties is to deal in or employ them. Coins cannot perforin the 
functions which are the attributes of a money of account. They 
are not used for the statement or expression of values. AVhen 
used in a purchase, or in discharge of a debt, it is an equivalent 
— as commodities applied to that purpose, the value of which is 
as necessary to be stated in money of account as that of any 
other article. The term money has many significations, and of two that are very diflerent — when applied to money of 
account, and to coins of gold or silver : in one sense it is used 


to express values, and to state amounts ; and in the other, it is 
applied to a commodity used in actual purchase, or in actual 

It is in the latter sense that we are now to speak of the pre- 
cious metals ; their use as money in no way divests them of their 
quality of a commodity. A man may invest his fortune, or any 
portion of it, in land, in cotton, in silk, in gold or silver. Pre- 
ference fur these metals as a common equivalent dates from the 
earliest records of history, and probably prevailed long before 
the idea of money was formed. It would be interesting to assem- 
ble here all the fragments of history on this subject ; but it 
would not much subserve our purpose. We have abundant 
proof, in early history, that gold and silver were employed as 
"money of the merchant;" that they were weighed and passed 
as current money. Although called money, when thus weighed 
and passed, it is obvious that the term means no more than 
that gold and silver were the commodities used to barter or 
exchange for all other things, and for all services. This gave 
them the name and office of money ; and in this sense there is 
neither mystery nor difficulty in comprehending the nature of 
money. The beauty, admirable (qualities, and superior conve- 
nience of these metals, as embracing great values in small com- 
pass, have in all ages recommended them for this purpose. They 
were employed three thousand years ago as money ; they are 
still so employed. Gold and silver, in the days of the Pharaohs, 
were weighed as money ; they are still weighed as money in 
China : they are still weighed among us, and in Europe. The 
fact of their being weighed by public authority, and issued in 
pieces of convenient size, in no way alters the nature of their 
function of money, though it doubtless adds vastly to their con- 
venience, and quickens their circulation. Such pieces of money 
are not received, in payments and purchases, in virtue of their 
accurate weight, and their bearing the impress of public autho- 
rity, but because they are gold or silver, certified as to quality 
and quantity by the impression of the coinage. 

Much of the difficulty of understanding the distinction be- 
tween money of account, and money the medium of exchange, is 

104 Tx L I) A N D S I L V E R . 

removed -where the medium or money is weighed. Every one, 
then, knows that he expresses the price of gokl or silver by 
weight, as he expresses the price of other things. There is no 
complication in the transaction. The articles thus exchanged 
are examined as to quantity and quality, the respective values 
computed, and the exchange is made by the arithmetic of the 
money of account. It is simply the use of gold or silver as arti- 
cles for Avhich all other things are freely exchanged ; and this 
use is supported both by the market value of the metals, and by 
the convenience and confidence afforded by coinage. It is pro- 
bable that the exchangeable value of gold and silver is enhanced 
by their being employed as a common medium of exchange, 
thereby increasing the demand for them in proportion to the 
amount so used. The use made of them as a medium of ex- 
change by no means alters their price or value ; it is only one 
of the many uses to which they are applied. It is obvious that 
this medium of exchange is an expensive instrument, the gold 
and silver employed in this way being of no other use. The great 
value of the instrument imposes a limit upon its use, and pre- 
vents it from being employed as much as would otherwise occur. 
This limit of circulation could not be overcome by increasing the 
quantity employed as a medium of exchange; because increasing 
the quantity involved an increase of the expense of interchange 
of the medium employed, or a depreciation of the medium em- 
ployed. In no country does the quantity of the precious metals 
used as money probably exceed one-tenth of the value of the gross 
annual product of its industry ; and in none does it probably exceed 
one-hundredth part of the whole transferable property of the 
people. To employ a larger quantity, as a medium of exchange, 
has not been found advantageous. To avoid increasing this quan- 
tity, and even to save the necessity of employing it all, an im- 
mense number of devices have been resorted to, with more or less 
success, the consideration of which will be reached as we proceed. 
The first important step, after weighing the precious metals 
in payment, was coinage, a facility which greatly promoted a 
rapid circulation of money. In the shape of coins, a given quan- 
tity of money could be employed to make ten payments in the 


time it would before effect one. Coins are not only accurately 
weighed, but their quality is also accurately tested ; the impres- 
sion on the piece, Avhich makes it a coin, is an official and legal 
certificate of weight and quality. The gold or silver, then, which, 
previous to coinage, had to be carefully cut or subdivided and 
weighed, and carried to a skilful person to ascertain its purity, 
passes as a coin instantly from hand to hand, without delay or 
hesitation. Rapid as the circulation to which this facility of 
coinage has given rise, the exigencies of industry, civilization and 
commerce soon exceeded its powers. The movement of the pro- 
ducts of industry in every civilized community has long since 
far surpassed any possible circulation of coins. This, of course, 
stimulates efforts to effect the exchange of goods Avithout the in- 
tervention of money. Besides, the system of coinage was found to 
be susceptible of such abuses, as tended greatly to limit its use- 
fulness and power. Every country had its own mint, and esta- 
blished its own regulations. The weights of different countries 
did not correspond ; and as the coins of each were adjusted by 
its weights, it became necessary both to weigh and assay coins 
circulating out of their own territory. The people of each 
country were familiar only with the values denoted by their 
own coins, and therefore could not know the standard of weight 
or purity adopted at other mints than their own ; they could not 
confide in the certificate impressed upon a foreign coin, because 
they could not understand it. This difficulty, which has greatly 
obstructed tlic use of coins in all parts of the world, is also 
greatly enhanced by changes in weight and standard of quality 
at all the mints, and by changes in the impressions or appear- 
ance of coins. When more than a hundred different mints 
were issuing new coins to mingle with the old, a confusion 
supervened which reduced the convenience of coinage, in some 
cases, below the old mode of weighing. This evil became so 
intolerable as to beget loud and bitter complaints, and many 
attempts at reformation, some of which proved only aggravations 
of the mischief. Many were the suggestions and plans for a 
general system of coinage for Europe. It may well be doubted 
whether the vexations and losses incurred by the abuses of 


coinaf^e in many countries did not far exceed all the disadvan- 
tages of being without any. There are now in the vaults of 
bankers, in Italy and Germany, immense sums in coins which 
can no longer be circulated, because the people are unwilling to 
receive them. They belong to a past generation, their weight 
and ({uality are unknown to them, and of course their price is 
not known. These pieces are only used in bags, in the heavy 
payments between bankers ; they have ceased to be applicable 
to the ordinary circulation, and have lost part of their powers 
and usefulness.^ 

• Germany alone had C8 mints, each with its separate coinage and regu- 
lations. When all the gold and silver coins, with their subdivisions, from 
68 mints were circulating over a territory no larger than Germany, it can 
readily be conceived what a nuisance this variety became in business. But 
when this nuisance was enhanced by a due proportion of counterfeits, by 
the abrasion, clipping, and other deterioration of coins, it can scarcely be 
imagined how intolerable the burden became. The complaint was loud 
and bitter, and projects for reform abounded ; a system to be uniform not 
only throughout German}^ but Europe, was earnestly demanded. The same 
evil induced the establishment of banks of deposit in Holland. 

In urging upon the public his proposal of a convention of delegates 
from the various governments of Europe, to devise a uniform mode and 
system of coinage, ScarufE placed before his readers the whole mischief in 
bold relief. The director of the mint in Reggio, however, could not move the 
authorities of that day by his logic, nor by his position ; and he lacked the 
power which Napoleon applied to the subject more than two centuries after, 
when he introduced a uniform coinage into Italy. No sooner had the power 
of the French Emperor ceased to be felt in Italy, however, than the Pope, 
and other princes, commenced the old system of multifarious coinage, the 
evils of which are now seriously felt : " Dont la diversite embarrasse tons 
les jours, non-seulement les etrangers et les voyageurs mais meme les ban- 
quiers et niarchands Italiens." 

Italy is said to be fan;ous for the worst coins, and the best writers on 
money. One of tlie earliest of these was Scaruffi {''Discorso sopra la Mo- 
neta"), published in 1582, and to be found in the second volume of "Baron 
Custodies Collection of the Italian Economists." Scaruffi was, for many 
years. Master of the mint at Reggio. lie was so profoundly impressed 
with tlie mischiefs of the coinage, that he looked upon it not only as the 
scourge of Italy, but as " a conSagration which threatened all Europe." 
Not satisfied with deploring these evils at home, and with suggesting local 
remedies, he proposed a plan for a uniform and general coinage for all 


The complications and perplexities of coinage have long been 
a serious grievance to the industry of the civilized ■world — a 
grievance, in many localities, regarded as intolerable, and only 

Europe, the coins to be the same in size, weight, and alloy or standard. If 
this suggestion of Scaruffi's was not adopted, another important one was. 
He proposed that all manufacturers of plate and jewelry tihould be com- 
pelled, by law, to place their mark on every article manufactured by them, 
together with a designation of the quality of the metal. This is now the 
law in most of the countries of Europe, and should be here. 

In this age of paper currency, of higher commercial credit, when public 
opinion is strong enough to restrain men in authority from debasing coin, 
it is scarcely possible to credit the injury inflicted upon industry and com- 
merce by the diverse coinage of Italy, its alterations, counterfeits and de- 
basements. This combined evil is not only called, as above, a conflagration, 
but a scourge, a pestilence; it was compared with the contemporaneous 
famine and pestilence of the IGth and 17th centuries. The aid of Heaven 
and the Church was invoked by processions, indulgences, &c., to miti- 
gate the morbus numericiis. The ecclesiastical remedy was not suc- 

"L'ltalie fut sans contredit la nation qui souffrit le plus dc cet excess si 
grave. Divisee pour son malheur en tant d'etats divers, ie mal scmblait 
multiplier par le nombre de ces gouvernmcns." ..." lis persisteraut 
alors dans la stupide determination de laisser l'ltalie ce qu'elle etait depuis 
long-temps, une mosaique de gouvernemens, de lois, de douaines, de mon- 
naies," ifec. 

In the Papal dominions a custom has prevailed, which adds greatly to the 
perplexities of those who have to deal in the coins of Italy. Every Pope 
adopts new devices, and often makes other changes, for the coins to be 
issued during his Pontificate; and besides this, the interregnum between 
the demise of one Pope and the election of another, which is often a period 
of some months, is characterized by a coinage of its own. Between the 
years 1700 and 1780, there were issued from the mints at Rome 283 dif- 
ferent coins, of which 67 wore gold. Besides these, other varieties were 
issued from other mints in the ecclesiastical States, as Boulogne, Ferrara, 
and Gubbio. [ "Caissier Italien," folio 8.] 

In the same period, the other mints of Italy were active, and issued, in- 
cluding those of the ecclesiastical estates, not less than 800 varieties of 
coin, to circulate in the small territory of Italy. 

It was felt to be a great relief from this intolerable confusion, when Napo- 
leon introduced a uniform coinage. This blessing was only enjoyed during 
the ascendency of the French Emperor. As soon as it ended, in 1814, 
every government of Italy returned to the old system of coinage, and con- 
tinues it until the present. A traveller may, at any time, obtain a roleau 


escaped by the establishment of banks of deposit, or other de- 
vices. We refer now only to the multiplicity of coins of different 
weights and degrees of purity. Of course this evil was immensely 
increased by the secret debasement of coins practised in a 
greater or less degree at all mints, until within a very brief 

But coinage was found to have its diflScultics, independent 
of mere complication and variety of coins and standards. The 
coins in actual use were found to lose in weight by wear so 
rapidly, that the smaller sizes, in the course of a few years, dete- 
riorated in weight from ten to twenty per cent. This inevitable 
process was slow, but sure ; the coins of a whole people became 
so diminished and injured in their own hands, that men of busi- 
ness were afraid to receive them at their nominal value. This 
deterioration of course obstructed their circulation, and lessened 
their power and usefulness. Every European country has suf- 
fered seriously from this cause. 

Another difficulty encountered by coinage, scarcely less than 
any other, is the facility it gives to counterfeiting, and to frauds 
upon the genuine coin. Coined money circulates with such 
rapidity, upon the faith of the public certificate on its face, veri- 
fying weight and quality, that counterfeit coins are put in circu- 
lation among the people with a success, which makes it a large 
business wherever coins are extensively employed ; and counter- 
feit coins often continue long to exercise the functions of money, 

of coins from an Italian banker, which, though of full weight, can only 
be disposed of at a discount. We said, may obtain ; we should rather 
have said, he will be fortunate if he is not sometimes served in that 

Those who wish to know more of the evils of Italian coinage and money, 
may consult the Cambist writers. Commercial Dictionaries, and numis- 
matic authors who treat of the coins of that country. See Scaruffi, Davan- 
zaii, and other writers, whose works are contained in the collection of 
Baron Cusiodi, of the "Ecoiiomisti Italiani," in 51 vols. 8vo. See, also, 
" BaccoUa degli Scriitori delle Moncla d' Italia, Fillipo Argellati ;" " Sio7-ia 
delta Economia Pubblica in Italia, di Conte Pecchio ;" ^'Ilistoire de la Re- 
publique de Venise," torn. iii. 75; "Caissier Italien," passim: "Marperger 
on BanJcs," 1717, 4to, pages 170 to 189, in German. 


before tlicy are discovered. In China, the skill of counterfeiters 
is sucli, as wholly to prevent the use of coins ; and that vast 
population is — for that reason, it is said — confined to the 
primitive mode of weighing, in payments, all the gold and silver 
used in commerce. 

Genuine coins are, by fraud, subjected to processes which 
rob them of a considerable proportion of their value. They are 
punched; sweated; filed; sawed in two, the interior scooped out, 
and filled with lead, the sides being then reunited ; these, and 
other modes of making a profit on new coins, have been success- 
fully practised in every country, to a greater or less extent. By 
these processes, coins are reduced at once, for the profit of the 
operator, to the lowest value at which they will circulate. They 
may thus lose, in a day, as much as they would have lost in 
years of circulation. If these, and other mischiefs attendant 
upon a large circulation of coins, are not felt to the extent they 
once were, it is because the circulation of coins is so largely 
replaced by bank-notes, that false coiners, finding it unpro- 
fitable to pursue the business, have turned their attention, 
with great success, to the production of counterfeit bank-notes. 
"Whenever governments return to a large circulation of coins, 
false coiners will be found at their old business.^ 

We find, then, in practice, various limitations to the power 
of the precious metals as money. They must, in the first 
instance, be weighed and assayed before they are received in 
payment. If that difficulty be removed by public authority, 
and pieces be issued ready weighed, of a certain quality or 
standard, then the changes of weights and standard, the multi- 
plicity of coins consequent upon the great number of mints, the 
counterfeits and frauds upon the coins, all together make up a 

■ When, upon an occasion not very remote, one of the governments of 
Italy recalled a coin only a few years in circulation, the officers of the mint, 
not being aware of the danger, found after a short time that they had 
already redeemed a much larger amount of the specific coin than the mint 
had issued, and the offerings for redemption were far from growing less. 
If this test were applied to many coins, it would reveal a quantity of base 
money of which few have any suspicion. 


great obstruction to the continued and increased use of gold and 
silver as a sole medium of exchange. We shall recur again to 
the fact, that the great value of these metals makes their use a 
very expensive method of eflfecting exchanges. 

These difficulties in the use of the precious metals as an in- 
strument of payment, have operated with such eifect in the more 
civilized portions of the worhl, that only a very small portion 
of the exchanges of the products of industry are now effected by 
the actual intervention or presence of either gold or silver. They 
are now chiefly used in retail dealing, in small transactions, 
and in paying balances of trade. The great subdivision of 
which the j^recious metals are susceptible, specially fits them 
for the actual payments of the retail trade. Where countries, 
districts, or individuals have large and continued dealings, by 
which they in effect exchange goods for goods, a balance may 
fall either way, for which the goods are not wanted ; such 
balances are with facility discharged by the export of gold or 
silver. But there is still a natural tendency in the marts of 
commerce to avoid, in every possible way, the use of so expen- 
sive an instrument of trade as gold and silver. The various 
modes of dispensing with them, and the substitutes employed, 
will come under our notice hereafter. 

§ 2. Ciradation of the precious metals as money — Commerce depends upon 
coins for so muck tise as is made of (hem, and no more — Tliey jycrform no 
functions beyond the use we see made of iliem. 

No term is more common, in treating of mon^y, than circula- 
tion. It is applied equally to all its substitutes, as bank-notes, 
checks, bills of exchange, and promissory notes, and other secu- 
rities. It is a term founded on well-known facts, and descrip- 
tive of well-known tendencies. With the facts and many of the 
details of circulation, all men of business are more or less fami- 
liar ; but not many give themselves the trouble to analyze the 
process, and its results. They know that money goes and comes ; 
that it passes round, and appears to return whence it set out ; 
and that there is a sort of average quantity of money circulating 
among a certain number of people in a certain district : that if 


the very same coins do not, year after year, perform the same 
round, a very considerable proportion will be found in the same 
track. Few examine minutely the details which give this circu- 
lar impulse to money, as it moves in the channels of business. 

Money being a medium by which men exchange commodities, 
its movements are wholly controlled by the course of this ex- 
change of commodities. Men exchange the products of their 
industry, or their professional or intellectual services, or their 
bodily labor or skill, for other products, or for other services, or 
labor or skill. This is the object, sum or result of their transac- 
tions ; but the business is effected by exchanging these things, 
first for money, and then by exchanging the money for the 
things required. The money intervenes, and then retires ; it is 
not of the substance of the transaction. If the exchange desired 
could, with equal convenience, be effected without the aid of 
money, it would not be employed. No exchange of commodities 
is, in the result, any the more effective for having been made 
with money. The farmer who sells a quantity of wheat for ^500, 
taking a parcel of land in payment, and who afterwards pur- 
chases agricultural implements, giving the land in payment, has 
exchanged his wheat for the implements by the medium, not of 
coins, but of land ; but the exchange is equally as effectual and 
advantageous for him, as if made with coins. The medium em- 
ployed leaves none of its marks or characteristics on the exchange. 
It may be a very grave question, in many localities, whether 
wheat can be more advantageously converted into flour by steam 
or water-power ; but it is of no consequence to those who eat 
the bread, what medium has been employed in the conversion. 
So, whatever importance belongs to the subject of money, and 
other modes of exchange, it in no way affects the validity or 
usefulness of the exchange, however it may have been accom- 
plished. The first consideration is the desired exchange ; the 
next is, that it should be effected at the least expense, and with 
the greatest facility possible. Of course so expensive an article 
as coined money, whatever its merits as a medium of exchange, 
will not be used when it can be dispensed Avith; and, as a matter 
of fact, very lew of the exchanges referred to ;ire now nuide by 


tlie intervention of coins. But although these are now so gene- 
rally dispensed with, yet the mode and causes of the circulation 
of money, were it invariably used, requires not the less to be 
better understood. 

Every man exchanges that which he has to spare for that 
which he wants, and others have to spare ; and there is scarcely 
a community, of which the members are not more or less de- 
pendent on each other. All are, to some extent, dependent on 
the farmer, merchant and mechanic ; but these are dependent 
on the physician, lawyer, teacher, and other professional men ; 
and all are, by a complicated but well-understood dependence, 
linked together. All receive something, directly or indirectly, 
from the others. Now, if money were used in all this inter- 
change of commodities and services, it would be found to tra- 
verse the whole circle of the community ; and though it might 
pass back and forwards many times in the hands of individuals, 
yet it would have performed a round in the community. 
The chief transactions of any community are substantially 
the same every year, or half year ; and it would happen that 
very nearly the same sum, if not the same money, would pass 
through the same hands every season. Great variations must 
of course occur, but there would be an approximation to the 
same results. The farmer, the mechanic, tradesman, manufac- 
turer, and the professional man, would all go through nearly the 
same round of exchanges, and be ready, with the return of the 
season, to go through them again. The money would thus have 
actually been paid for every commodity, and for every service, 
only as a medium. The substance of the whole would be the 
transactions or dealings which had taken place between the 
parties, the money being left wholly out of view. The rapidity 
of the circulation determines the quantity of money required ; 
and the rapidity of circulation depends on the state of industry, 
and upon the roads, rivers, cities, and other natural and artifi- 
cial facilities. But the circulation is mainly and chiefly facili- 
tated by that mutual dependence in a community which springs 
up when people supply their own wants. The narrower the circle 
in which money moves, other things being equal, the more 


exchanges it can eifect. If farmers, manufacturers, tradesmen, 
mechanics, and men of all the various occupations which go to 
make up a civilized community, are close together, their ex- 
changes, if effected with money, will be rapid in proportion to 
their vicinity. If we imagine a people wholly isolated, then the 
circulation among them would be complete ; no part of their 
money would flow into other channels, and no final balance 
would remain to bo settled with any other community. 

The regularity of this movement, and the sameness of the 
result, has suggested to many minds, in every age of the world, 
that money does not perform its functions by reason of its intrin- 
sic value, but by virtue of this circulation. It appeared to them 
that if parties were agreed, any other substance would perform 
the same office as well. The Carthaginians, history informs us, 
resorted to leather as a material for money ; and the Chinese, 
some eight centuries ago, to paper, not on any principle upon 
which paper-money is now used, but simply as a material for 
money, on Avhich could be impressed a certificate of value, for 
which each piece of leather or paper was to pass. We have no 
adequate account of the experiment in leather ; but the Chinese 
trial of paper proved as unfortunate as some of the same kind 
in later times. 

It is obvious enough, upon a little consideration, that mucli of 
the efficacy of money depends on the fact that it circulates in 
accordance with the mutual dependence of the people, and with a 
rapidity proportioned to the smallness of the circle, and to the 
natural or artificial facilities Avhich exist to aid the transporta- 
tion of the commodities for which it is used as a medium of 
interchange. But the regularity of the proceeding in no com- 
munity is ever so great, that mere counters could be safely sub- 
stituted for money of intrinsic value, an idea which has haunted 
men in all ages, and no doubt gave rise to the experiment of 
the Carthaginians and the Chinese. The idea is, that if men 
agree Avhat substance they will use for money, as they only 
receive it to pay it away, it is perfectly indifferent what the 
material is, so it be convenient. There are insuperable objec- 
tions to a mere conventional medium of exchange ; among these 


is the "wide door it opens to fraud, and the difficulty of restrict- 
ing its quantity, which is the only means of maintaining its 
nominal value. If mere counters, -without value, would purchase 
articles of value, counters would be supplied too rapidly. When 
the medium employed has an intrinsic value corresponding with 
its nominal price, then the holders are at all times, and under 
all circumstances, safe at every stage of commercial progress. 
Let war, revolution, commercial revulsion, or despotic authority 
bring forth what evils they may, the people have in their hands 
either their commodities, or their price in the precious metals. 
It is true that any material employed as money, which all are 
willing to receive, may with perfect success fulfil all the func- 
tions of money for a time ; but no means have yet been found to 
make money, without intrinsic value, adequate to all circum- 
stances and emergencies. Men may, for a while, concur in such 
experiments, and all may go smoothly for a time ; but when 
large balances, foreign or domestic, are to be paid, when the 
season of alarm and trouble arrives, the conventional money, 
which depends on the confidence of an entire community, is 
stripped in a moment of all its power and usefulness. Counter- 
feit money may, for a long period undetected, perform all the 
functions of genuine coins ; but the moment its true character 
becomes known, all its power is gone. 

Whilst, therefore, the circulation of money presents some fea- 
tures of regularity which suggest the idea that counters may be 
substituted for coins, there are accompanying irregularities, 
unavoidable obstacles, emergencies, accidents and hazards, Avhich 
make it impossible permanently to substitute mere counters 
for coins. The devices now employed so extensively under the 
credit system are not of this kind ; they are securities, express- 
ing that a certain amount is to be paid on demand, or at a day 
fixed. A counter, without intrinsic value, is neither a thing of 
value, nor a security, nor a claim upon any one. Whenever it 
is refused, there is an end of it. 

We have already noticed the obstacles to rapid circulation, 
arising from the wearing of coins, from frauds upon the coinage 
by punching, sweating, splitting, and debasing ; but more espe- 


cially from the immense variety of coins proceeding from scores 
of different mints. Whatever facility of circulation any people 
may have by the nature of the country, or ^Yhatevor artificial 
facilities might be provided, these obstacles seem to place a limit 
to a largely increased circulation of coins, which neither power 
nor ingenuity can overcome. The first I'emedy resorted to 
against this evil was only an alleviation. The collection of this 
multifarious coinage in sacks, duly counted, indorsed, and sealed 
Avith the name of some well-known merchant or banker, only 
made the sack circulate as so much bullion. The coins were no 
longer useful or convenient, and their circulation as such was, in 
fact, at an end. 

The next great remedy for these obstacles to circulation was 
the establishment of such banks as those of Amsterdam and 
Hamburg. These banks received coins on deposit, after care- 
fully ascertaining their value, and placed the amount received 
to credit of the depositor. The holder of such a deposit 
transferred his title to the money in the bank, instead of count- 
ing and delivering the coins. This method of transfer would 
have admitted of a circulation more rapid than any attainable' 
by coins at large, had not these banks surrounded the transfers 
with restrictions and limitations, which greatly reduced their 
efiicacy. In some cases, but one transfer of the same amount 
was permitted in one day. It is quite obvious that the same 
sum might be transferred, under very safe regulations, every five 
or ten minutes during the day. But this process of transferring 
the title to money is a very different thing from circulating 
money. It is, in fact, a stoppage of the circulation of coins ; 
the title circulates in their place. The parties to s.uch transfers 
do not know, nor do they attempt to ascertain, that the equiva- 
lent in coin is actually in the bank. These deposit banks were 
half-way stations between an exclusively hard-money circulation 
and the credit system. The parties who transferred and received 
credits in these banks confided in the fact that the money trans- 
ferred was there. There was an exercise of confidence and 
mutual faith, without which the bank could not have existed. 
We shall have occasion to remark that, in the case of the Bank 


of Amsterdam, that confidence, and the unimpaired usefulness 
of the bank, continued long after a large portion of tlie money 
liad been abstracted by the authorities of the city. 

Banks of deposit, then, rather mark the limits of the circula- 
tion of coins, than constitute its climax. They belong almost 
as much to the credit system as to the money system, partaking 
of the characteristics of both. Whilst civilized people have 
always shown a strong partiality for the precious metals as a 
medium of exchange, the history of the last four centuries shows 
that there have been inducements strong enough to suggest and 
introduce other modes of eifecting exchanges. No doubt the 
expense of gold and silver as a medium of exchange, the 
annoying difficulties growing out of a multifarious coinage at 
every mint, the multiplication of mints and coins, the debase- 
ment of coins by governments, and their fraudulent deterio- 
ration by rogues, contributed at a very early date to drive mer- 
chants and men of business to other methods of payment, and to 
seek another medium of exchange. But these inducements to 
resort to other modes of payment, influential as they must have 
been, were by no means the chief reasons why, at the present 
day, so small a portion of business transactions are effected by 
the actual employment of the precious metals as money. The 
partiality for this money is scarcely less than it has ever been. 
The great fact is, that the increase of industry and production 
for the last three centuries, the division of labor, and the conse- 
quent vast increase in the interchange of commodities, has far 
transcended any possible circulation of coins as a medium of pay- 
ment for the whole of these transactions. It may be safely 
assumed that when other modes of effecting these exchanges 
were adopted, it had become, if not a necessity, at least a conve- 
nience and an economy too considerable to be resisted. It may 
be asserted, too, very safely, that though the precious metals 
intervene to such a small extent, in proportion to the whole pay- 
ments of commerce, yet they are acting now as effectively as 
ever they did : that the transactions of commerce, which now 
take place without the intervention of gold or silver, are such as 
could not take place if dependent for their progress upon actual 


payments in the precious metals. The exchanges of domestic 
and foreign commerce, which take place without the actual aid 
of gold or silver, are essentially the measure of the incapa- 
city of coins to accomplish the commerce of the present day. 
Gold and silver money have long ceased to be the chief agent 
in effecting the exchanges of commodities. Their chief employ- 
ment now is as the small change of retail business, as a means 
of paying the balances of foreign trade, and as a security for 
the public in the business of banking. The quantity of coins 
withdrawn from circulation for this purpose of banking is vastly 
more than made up by the greater quantity of bank-notes issued, 
and by the greater rapidity of bank-note circulation over that 
of coins. Yet if the compai-ison between what is done with and 
without the use of coins be enlarged by adding to the circula- 
tion of coins that of bank-notes also, it will be found, especially 
in Great Britain and the United States, that a very small pro- 
portion of the whole payments of these countries is effected in 
coins and bank-notes, even when taken together. 

We are speaking, it will be kept in mind, of the actual use of 
coins ; of what is effected by the actual transfer of gold or silver 
as money. We yield nothing to the mistaken idea that coins are 
in some way employed whenever prices are expressed. Believing 
that the whole subject of expressing prices, naming amounts, 
writing down the results of sales in books of account, and all 
similar matters, belong to and are fully explained by the opera- 
tion of money of account, we refer, in speaking of the agency 
of coins as a medium of exchange, always to the actual employ- 
ment of the precious metals. In this restricted sense, every man 
can for himself determine to what a narrow channel their circu- 
lation is now confined, compared with other more effective 

Whatever indefinite ideas some may entertain upon the sub- 
ject, the real use of coins is merely tliat in which we see them 
employed. Though every man may exact payment in coins of all 
that is due to him ; yet this is almost never done. Wlien not so 
exacted, the payment is made in some other satisfactory way. 
The Treasury of the United States exacts payments in coins, 


and the payments are so made. Business is done with coina 
only when they are present in the transaction, actually paid and 
received. For so much use as is made of coins is business in- 
debted to them, and no more. 

^ 3, Tlie qiiantUy of 'money required for the business of a country. 

Few mystifications have been more profound than those which 
have pervaded speculations on the quantity of money required 
for the business of a country, and on questions as to the results 
of an increase or diminution of money. Such inquiries appear, 
at first view, important ; and few of the earlier writers upon 
money have neglected a subject so inviting as the amount of 
money needed to make a country prosperous. To men not 
deeply versed in the details of commerce, there appeared no 
insurmountable difficulty in the topic. It was long a favorite 
notion, that the wealth of a nation was measured mainly by its 
stock of the precious metals ; and legislation exhausted itself in 
the vain attempt to prevent their exportation. That commerce 
which brought home gold or silver was considered a national 
blessing ; that which carried it oiF a misfortune. This opinion, 
which belonged to the mercantile school in political economy, 
lingers yet in many countries, and in many minds in all coun- 
tries. The doctrines on the subject of the quantity of money, 
to which this opinion when it prevailed gave rise, however, con- 
tinue to be inculcated as earnestly as before, although they lost 
their chief support when it was admitted to be contrary to sound 
policy to prohibit the exportation of coin or bullion. 

To us it appears that the subject is wholly impracticable, and 
that no safe conclusions can ever be drawn from such reasonings. 
The actual quantity of money in a country never has been, and 
never can be ascertained with sufficient exactness to make it the 
ground of any safe deduction. The actual sum of money em- 
ployed by any country in its ti'ade, for any period of time, it is 
still more impossible to ascertain. And the quantity actually 
needed in any country for the purposes of its trade, during any 
certain lapse of time, is still more indeterminate. Of two coun- 
tries, the annual value of Avhose commerce is the same, one will 


require for that commerce a much larger sum than the other. 
This may depend on the relative extent of their several territo- 
ries ; on the state of their roads and rivers, and other internal 
communications ; on the articles in which they respectively deal ; 
on the size and location of their cities and towns ; on the state 
of their morals ; on the nature of their governments ; but more 
especially on the degree or extent to which the credit system, 
and its various devices to save the use of money, have been 

So it is obvious that in the same country, at different times, 
varying quantities of money will be required to transact the 
same amount of business : this may depend on a state of peace 
or war, on times of tranquillity or public disturbance, on actual 
or apprehended mischiefs in legislation, and on the state of mer- 
cantile confidence. All these are influences, the intensity of 
which can neither be measured nor estimated. No man, there- 
fore, can say what sum of money is needed in any country, at 
all times, nor at any time. Whatever conjectures may, even by 
the most observing and the best informed, be indulged on this 
subject, cannot form any data worthy of consideration.^ 

If positive quantities are out of our reach, comparative are 
only less so ; it cannot be doubted that there is sometimes more, 
and sometimes less money ; and business men often experience 
fluctuations of this kind, which make this but too plain. There 
is no gauge, however, by which we can measure or estimate the 
extremes of these fluctuations, or mark their intermediate pro- 
gress. Nor is the public voice always correct in this matter ; 
for very often money is said to be scarce, when its holders are 
only unwilling to circulate it freely ; and often it is said to be 
plenty, when its circulation is only rapid, or when credit sup- 
plies its place. It is often observed that the deposits in the 
banks are largest at the time when the cry of scarcity is loudest, 
and smallest when there is no complaint. So that, although 
there can be no doubt that fluctuations do occur, yet not always 
at the time, nor in a way to correspond with public opinion. 

' See C. H. Rau, Sect. 266 ; Storch, vol. iii, note 12. 


The alarm produced by fear of invasion, by rebellion, by a com- 
mercial crisis, by large failures, and by many events which dis- 
turb a commercial atmosphere, often has the effect of producing 
iliis apparent scarcity of money. At such moments, money is 
deemed the most desirable possession ; and all who have it 
pause before they part with it, and retain it if they can. It 
ceases to circulate freely, and the impression becomes complete 
that money is scarce. When no disturbing cause is at work, 
when trade is brisk and confidence high, all are made to feel 
that money is abundant, because merchandise, at such seasons, 
is more desirable than money. At such times, too, the devices 
for saving the use of money are easily kept in operation, and 
are more effective ; money is thus made more abundant for some 
purposes^ by sparing it in othei'S. It seems, then, to be as diJE- 
cult to ascertain the actual increase or diminution of money 
which produces fluctuations, as it is to find the actual quantity 
used or required in any country ; and in neither case can any 
approximation to the truth be near enough to form the basis of 
sound conclusions. It is certainly better to approach this sub- 
ject on safer grounds, and to regard it from a point of view 
which will take in admitted facts. 

If fluctuations in amount are injurious, causes and prevent- 
ives become more pressing inquiries than the actual quantities 
added or withdrawn. It is the varying, and not the actual quan- 
tity which does the mischief. We have not yet, however, 
arrived upon safe ground. Not being able to ascertain the sum 
of money which goes to make up a circulation, nor the sums of 
increase nor decrease which constitute injurious fluctuations, 
and knowing that other causes, such as those already indicated, 
produce the same effects as variations in quantity, there must 
often be danger of mistake in assigning causes, or in proposing 
remedies. On a subject involving so many combinations as this, 
those who are most confident should be the most distrusted. In 
a general treatise, no useful rules can be given for such investi- 
gations ; the inquirer must painfully and watchfully observe the 
facts, and on these rest his conclusions. 


Whatever progress may hereafter be made in the statistics of 
money, great uncertainty must still cling to this subject. If the 
amount of metallic money actually existing in any country could 
be ascertained with exactness, yet it could never be known how 
much was hoarded, nor how much was in the hands of those 
who kept it for months, or years, wholly unemployed. So in 
regard to paper currency. The amount issued may be told ; 
but how much is in constant use, no one can tell. 

If such speculations are worth pursuing, we leave them to 
those who find in them an importance which does not strike us. 
Hitherto, all that we have seen on the subject has been unsatis- 
factory. What we may farther say, in reference to the quan- 
tity of money in circulation, will be under other heads. The 
effect of quantity upon prices is a question of the highest im- 
port, and must be fairly encountered. So, also, the agency 
of increased issues upon the value of the currency, upon the 
exchanges in stimulatins; over-action in trade. All these are 
subjects deserving of close attention ; but they involve other 
facts and considerations than those which concern the actual 
quantity of money, and the problems which they present can 
never be solved by weighing gold and silver, or numbering 

The quantity of coins required by banks to meet their engage- 
ments is a special inquiry, and will come within the range of 
subsequent chapters. It involves special considerations wholly 
different from the question, Avhat amount of the precious metals, 
in the shape of coins, it is necessary or expedient to liave for 
the business of a country. The banks have a certain specified 
duty to perform, and they must form their estimates according 
to the nature of that duty. But the quantity of metallic money 
needful in a country is wholly indefinite, and must be left to the 
results of the spontaneous action of the people, and tlicir gov- 
ernment. No such approximation is possible, as that which 
may be made to the quantity required by the banks. Tlie real 
subject is trade and business, and the modes of carrying it on ; 
the quantity of money required for this purpose in a year is 


one of that class of questions which, though asked in advance, 
must wait the reply which time reveals. It may be interest- 
ing to know how many warehouses, how many clerks, how many 
ships, and how many carts will be employed during the pro- 
gress of a year in a particular country ; but the information is 
unattainable. There is, besides, such a wide range of manage- 
ment and economy in all these things, that exact quantities and 
numbers become, in a great degree, unimportant. 


2 1. The preciovs metals neither a measure nor a standard of value — TJiei/ 
are the legal standard of payment — Tlie mint has a standard of coinage 
— Legal tender — Objections to legal j^^'ice of gohl and silver — Earl of 
Liverpool — Instances of price fixed hy authority in Great Britain — 
Seignorage on coins for retail business — Waste and folly of incessant 
recoinage — Legal tender at market j^i'ice the pi'oper nde in large trans- 

We have seen that there is a very obvious distinction between 
price and payment ; that prices are named much more frequently 
than sales take place, or payments are made. If the price is 
not satisfactory, neither sale nor payment follow. It is only 
when a transfer of property occurs that payment is required, and 
that the equivalent employed to effect that purpose is produced. 
The parties understand each other as fully when the price is 
named, as when the payment is made. Prices are named upon 
assumed quantities of the article, to which the price is affixed ; 
this specified quantity must be carried in the mind, as well as 
the value of the unit of the money of account. Actual weight 
or measurement by the parties ascertains the quantity of goods ; 
coinage is generally tlie mode of defining the quantity of 
the precious metals employed in payment. Men are not always 
aware that they employ the money of account in stating the 
value of their own national coins. When a sale to the amount 
of one hundred dollars occurs, and payment is oifcrcd in Ijritish 
sovereigns, their value is stated in accordance with the then ruling 
price, from $4.80 to $4.90, and the quantity paid is adjusted 
accordingly : if the payment be made in eagles, the process is 
the same ; the quantity of gold in ten eagles is readily stated 
at the known price, ten dollars each ; but if the eagles arc of 



the old coinage, they may be rated at one dollar and five or six 

The precious metals are, in no proper sense, a measure of 
value ; they are simply a convenient equivalent, being of very 
great value in small compass, susceptible of being brought to 
uniform quality, and of being subdivided into pieces or coins of 
any required weight. These pieces are not employed as measures ; 
they are never produced to express or ascertain a price, or show 
what a purchaser or seller would give or take for any article. 
If this were necessary, the equivalent in coins would have to be 
laid down in every transaction, that the party to whom an arti- 
cle of merchandise was offered might know its price. When a 
horse is said to be worth an hundred dollars, the price is better 
understood than if one hundred dollars in silver or gold coins 
had been exhibited as the measure of the value. Neither does 
expressing prices consist in naming coins, or any number of 
them ; for this facility in stating prices is the same, whether, or 
not, there exist any corresponding coins — as was exhibited in 
the case of our colonial pounds, shillings and pence. 

The same considerations prove that the precious metals are 
not, strictly speaking, employed as a sign or representative of 
value. They are neither signs nor representatives, in any prac- 
tical sense of these words. Such expressions have all sprung 
from the want of attention to the functions of a money of 

> The Eai'l of Liverpool, in his chiborate " Treatise on the Coins of the 
Realm," thus sums up the imperfections of coin as a measure of value : — 

" 1 Coins are an imperfect measure, because they fluctuate in value even 
when made of one metal only. Neither gold nor silver vrill now purchase 
as much of any article as before the discovery of America. As a measure, 
neither can now be of the same import as formerly. 

" 2. If coins are made of both metals, they are liable to vary with refer- 
ence to each other. In the 43d of Elizabeth, fine gold was to fine silver, at 
the English mint, as 11 to 1. In 1GG3, it was Uglh to 1. Guineas were 
then coined as 20 shilling pieces. After many fluctuations, and rising as 
high as 30 shillings, they were fixed by proclamation at 21 shillings. Fine 
gold is now [1805] as 15/5^/5 to 1. 

"3. If the sovereign attempts to fix the rate or value at which coins of 


Another attribute frequently given to the precious metals is, 
that they are a standard of value. This is equally inaccu- 
rate. There may be a common equivalent — an article that is 
commonly given in exchange for other articles ; but there can 
be no standard of the value of all articles of merchandise. 
Every commodity may have its standard of quality — a certain 
grade being assumed, with which all other specimens are to be 
compared ; but no one article can be assumed or regarded as a 
standard for other things of a totally different kind. Gold 
cannot, in the mint, be made the standard for silver ; nor can 
silver be made the standard for gold. Much less, taking the 
whole range of articles of human consumption, can there bo any 
standard of value or price to which all can bo referred, or with 
which all can be compared. The term standard is, then, inac- 
curately applied, when it is used with any such signification. It 
is said, for instance, that the standard of Great Britain is gold ; 
and that, until recently, that of France and the United States was 
the double standard of gold and silver. Standard of what ? There 
can be no such thing as a general standard of value. The term 
standard, thus used, is a common but ill-chosen expression of the 
fact, that in Great Britain gold is the standard of payment, and 
that in France and the United States both gold and silver were 
the standards of payment; or, to adopt legal language, gold in 
Great Britain, and gold and silver in France and the United 
States, were a legal tender in payment of debts. If the term 
standard is employed at all, it should be standard of payment. 

That there should be some legal mode of discharging a debt 
is the settled policy of modern times. In some countries, gold 
is made a legal tender, in some silver, and in some both these 

diflPerent metals shall pass, a third imperfection is perceived. Their prices 
in the market will frequently differ from the rate at which he has valued 
them in coins ; and when coins of two metals are made a legal tender, 
there will be two measures of property, occasionally differinf; from each 
other. The speculator will profit by this, and the debtors will pay debts in 
the cheapest medium. 

"A fourth imperfection is that which arises from gradual wear, which 
will lead to the melting of heavy coins, and keeping the light only in circu- 
lation." — ''Coins of the lleahn," pp. 10, 1 1, 12. 


metals, in discharge of debts. So -willing, however, arc people 
to receive payment of what is due to them in the ordinary cur- 
rcncy, whatever it may be, that it is very rare to see a formal 
tender of gold or silver, or to hear of such a demand. Their 
use among the banks, and in payment of foreign balances, does 
not proceed from its being a legal tender, but from pure com- 
mercial reasons, which would be equally operative, if the law of 
legal tender did not exist. Gold or silver w^ould seldom be 
refused in discharge of a debt, even if no law required it. 
Few, however, will dispute that it is expedient to provide some 
legal mode of paying a debt, that every man may be able, in 
some way, to obtain a legal acquittance of his pecuniary obliga- 
tions, or at least be discharged from liability for subsequent 
interest, if the creditor refuses to accept the legal medium of 
payment. It is in this sense that the word standard may be 
applied to gold and silver, apart from their quality, with some 
degree of propriety. 

Though it is the policy of modern nations to establish a 
standard of payment, and though gold or silver are the best 
substances for that purpose, not only by reason of their intrinsic 
value, but on account of their being so generally and so long 
used as money, there are objections to fixing the price by law at 
which gold or silver, or both, shall be received in payment of a 
debt. This has been done in the face of the admitted fact that 
both the precious metals fluctuate in value. Nothing has con- 
tributed more to obscure the subject of money than this fixing 
by law the price of gold and silver. 

No one has placed the argument in favor of the government 
fixing the price of the precious metals, in a more distinct and 
forcible form, than the Earl of Liverpool. He quotes Mr. Harris 
as differing on the point from Mr. Locke : — " He [Mr. Harris] 
thought that the regulation of the value of coins — that is, the 
nominal value at which they were to be legal tender — was a sub- 
ject of too much importance to be entrusted at any time to pri- 
vate judgment ; and it is certain that there has generally been a 
clause in the mint regulations declaring at what nominal rate or 
value the coins directed to be made should be current. It is, 


indeed, hardly possible that the people in general, particularly 
those of an inferior class, should be able to exercise any true 
judgment on the intrinsic or relative value of the metals of 
which any coins are composed ; and if they were to attempt to 
exercise such judgment, they would be exposed to perpetual 
frauds and impositions from money jobbers, and others, who 
understand the business better than themselves. The practice 
of all governments, in every age, has coincided with the opinion 
of Mr. Harris ; and experience has evinced the necessity of 
fixing, by public authority, the rate or value of coins of every 
denomination permitted to be current as lawful money or legal 
tender." ^ 

This is a distinct assertion of Avhat many deny, that the price 
of coins under the prevailing systems of coinage is fixed by 
authority. The reason of this practice of all governments is 
sound, so far as concerns the classes the Earl of Liverpool 
would protect. The system of coinage which prevails in England 
for silver, is a protection to these classes. The same system can 
be applied, with proper modifications, to gold, and the protection 
would be equally complete. 

The objection that the people, in general, are not able to 
exercise any true judgment as to the value of the metals, is of no 
weight ; because there is always, and must be, a market price 
of gold and silver, which does not and cannot depend on the 
judgment of people, superior or inferior, as to the intrinsic value 
of these metals. It is a price determined by the course of trade, 
and the course of procuring the precious metals. The practice 
of governments, and legislation on this subject, has been too 
exclusively guided by consideration of the merest retail trade, 
and should, therefore, have been confined to that business. It 
is in the power of governments to fix the price of coins, so far 
as they can be employed in the retail business ; but beyond 
that, no public regulation is needed; and none can definitely 
fix the price of coins or bullion, for commerce will make its 
own price. It is true that governments can enforce a law of 

' " Coins of the Realm," page 16. 


legal tender, even against the course of commerce and the laws 
of trade, as to the payment of debts. 

This is what is attempted by the prevailing system, which 
results in one price of the precious metals arising from the trade 
of particular nations, and of the world ; and another price by 
public authority, according to which debts must be paid, if so 
demanded. But this demand is almost never made, and so far the 
law of legal tender is inoperative. In all transactions between 
the people of different nations, the commercial price of bullion 
and coins is alone acknowledged. As the people of no class are 
in the habit of demanding payment in gold or silver at the mint 
price, it would not disturb them in the least if, in sums over $20, 
neither coins nor bullion Avere a tender at any other than the 
current commercial price. The necessity, then, of fixing the 
price of coins by public authority is not acknowledged, and does 
not exist beyond the wants of the merest retail trade. Beyond 
that it is operative only for mischief, and is practically repu- 
diated by foreign merchants, and by the domestic also, so far as 
direct dealing in bullion is concerned. 

It is evident that the Earl of Liverpool labored under the 
mistake, that prices are fixed and expressed in coins : if he had 
not been wrong in this, he would have felt less afraid to leave 
coins, in large suras at least, to the market rate. 

It is in naming the rate at which coins shall pass, that govern- 
ments place a fixed price upon gold and silver. It is done, in 
the case of domestic coins, by prescribing very accurately the 
weight of the coin, to make it correspond in value to some spe- 
cial amount expressed in money of account. In the case of 
foreign coins, it is done by stating the price directly in the 
money of account. A very general mistake is involved in this, 
which may be mentioned here, although it does not concern the 
present question. It is assumed that the circulation of money, 
the stating of prices, and the reckoning of accounts, will be faci- 
litated by a coi'respondence between the coins and the denomi' 
nations of the money of account. This is only true in the 
merest retail transactions. In large payments, it has operated 
unfavorably to the interests of trade, by causing the coins to 


circulate at their nominal rate, after tliey began to be seriously 
deteriorated by "wear, and by fraudulent usages. When this 
takes place, as has frc(iucntly been the case, the evil is one 
which becomes yearly more difficult to cure ; and serious dis- 
turbance, both of the money of account and of the coinage itself, 
is the final result, with great national and individual loss. What 
is needed, in large payments of the precious metals, is not a cor- 
respondence with the money of account, but accurate weights, 
and the proper standard of quality. If gold and silver were 
duly assayed, and weighed in bars of convenient size, with the 
proper stamp of the mint, their value could as readily be stated in 
money of account as if it were in coins, and it could be paid and 
received much more readily. Large payments in gold are now 
made, in England, by weight ; and the same is true, to a con- 
siderable extent, in France and the United States. 

The price of the precious metals is fixed, by law, to the 
minutest possible fraction. The public authority assumes no 
arbitrary weight for coins, but requires them to correspond in 
value to some denomination of the money of account. It orders 
that a certain quantity of gold or silver shall pass for, or be a 
legal tender for a certain amount. When, for the first time, an 
English sovereign was coined in 1810, it was required to contain 
5dwts. '3,V,j'y grains of standard gold, or 4 dwts. 17i--,'/j7f grains 
of pure gold : that is, that quantity of gold was then declared 
to be worth a pound sterling. That regulation continues, with 
slight change, to this day ; and the unit of the English money 
of account is thus unhappily placed at the hazard of every fluc- 
tuation in the price of gold. 

As the sovereign was intended to be the actual equivalent to 
the pound sterling, 46,^/y sovereigns were to be coined from the 
pound of standard gold. By this method, 5 dwts. 3 ,'yy'„ grains 
of standard gold were made a legal tender for a debt of one 
pound sterling, and one pound of gold was made a legal tender 
for .£46 14.<f. (jcl. This arrangement was made in pursuance of 
an act of Parliament, and could only be changed by the same 
authority : until such authority is exerted, the same quantity of 
gold could be legally tendered only for the same sum, and in 


greater or less quantities in proportion to tlie sum to be paid. 
This is not the same thing as to assert that an ounce of gold, or 
a pound of gold, is a legal tender for an ounce of gold, or a 
pound of gold, as must be alleged by those who leave -wholly out 
of view the money of account. There has been no time, in the 
last five centuries, when the bankers and merchants of the cities 
of Europe could not at once tell the value of bullion by weight 
in their respective moneys of account. It has always been so 
expressed ; and the coinage of every country in Europe has, for 
a longer period than five centuries, been regulated by the money 
of account of each respectively. We can now readily refer, in 
various authors, to the price of gold per ounce, or pound, from 
the year 1350 to the present time. The English sovereign, now 
the legal equivalent for a pound sterling, is a coin of the recent 
date of 1816. 

For many centuries previous to 1816, the pound sterling of 
account had no representative in the coin. An attempt was 
made to furnish one in the guinea. But the price of gold was 
then too fluctuating, or the quantity of gold it required was not 
properly adjusted. This coin was quoted at various prices in 
the money of account, until it was finally fixed, when Sir Isaac 
Newton was Master of the mint, at twenty-one shillings. It had 
ranged previously between twenty-two and thirty shillings. 

So much does the history of English coinage abound in proof 
that the government has, for centuries past, fixed the price of 
the precious metals in coins, that it seems strange it could ever 
have been denied or doubted. It can be denied by those only 
who cannot conceive of coins as anything else than a measure 
of value, not measurable by anything else. Those who cannot 
conceive of a pound sterling as having any other meaning than 
twenty silver shillings, or four crown pieces, or a sovereign, in 
gold ; or who cannot conceive of a shilling as having any o^er 
significance than the silver that is in a shilling, cannot of course 
understand how these mint regulations fix the price of gold and 
silver. A reference to the history of English coinage reveals 
that the terms, pounds, shillings and pence, have long been em- 
ployed to express values in a way that shows them to have a 


meaning wholly independent of coinage. The value denoted by 
these terms has, in fact, furnished the sole mode of regulating 
the ^veijiht and denominations of the coins.' 

• On the 29th of January, IGGO, in the reign of Charles II., a royal pro- 
clamation was issued, fixing the price at which a variety of foreign coins 
should bo as current as sterling money of England ; as follows: — 

Weight. Price, 

p , , f The Spanish or French Quadruple Pistole... 17 dwts. 8 grs. ... £3 4«. Orf. 
■ 1 Double Gold Ducat 4 "12 " ... — 18s. 0(/. 


Mexican Dollar, or piece of eight 17 " — " ... — 4«. 9c?. 

Ducatoon' 20 "16 '• ... — b». 9d. 

In the year 1G61, in August, another proclamation fixed the rates at 
■which various coins should be current within the realm ; as follows : — 

The Unite now current at 22s. Orf. to be current at 23». 6d. 
Double Crown " lis. Od. " " lis. 9(/. 

Thistle " "• 4s. 4|c;. " " 4s. Sd.' 

In June, IGS.j, another proclamation was issued, fixing the price of 
foreign coins. We give the following as specimens: — 

Weight. Price. 

The Golden Eider 6 dwts. 12 grs £1 2s. 0(7. 

Quadruple Pistole 17 " 4 " 3 10s. 2,d. 

Double Pistole 8 " 14 " 1 15s. — 

Ducat 2 " C " — 9s. — ' 

In 1688, the same coins were, by another proclamation, made current 
respectively as follows : — £1 45., £3 IGs., £1 I8s., and £0 lO.s-. 

In 1G95, Parliament resolved, on the 15th of February, that guineas 
should not pass above the rate of 28 shillings. In a few weeks afterwards, 
the rate was lowered, by the same authority, to 2G shillings. In 1G98, the 
House of Commons resolved that "no person shall be obliged to take 
guineas at 22 shillings a-piece." ■• 

In 1717, the price of guineas was declared to be 21 shillings. A propor- 
tionable rate was fixed on other gold coins, and they were, for the first time, 
made a legal tender.'' 

In September, 1737, the following prices were affixed, by royal procla- 
mation, to various coins : — 

Weight. Price. 

Guinea — dwts. — grs £1 2s. Od. 

Moidore " 22 " 1 9». Sd. 

Quadruple Pistole 17 " 8 " 3 13». — 

Louis d'Or 5 " 5 " 1 2s. — « 

• Ruding's Annals of Coinage, vol. ii. p. .3. ' Ibid. p. 5. ' Ibid. p. 19. 

• Ibid. p. 40. ' Ibid. p. 66. Lord Liverpool's Coins of the Realm, p. 84- 

• Ruding's Annals of Coinage, vol. ii. p. 77. 


In Great Britain the uniform practice has been, for centuries, 
to fix the price of coins, both foreign and domestic, by kiw. The 
history of British coinage abounds in illustrations of the mis- 
chiefs resulting from this policy ; and also in proofs that the 
money of account vins employed in the arrangements of the coin- 
age, but without a clear conception of its character and proper 
functions. The price of all coins, foreign and domestic, was 
fixed by law ; and the weight of coins was made, in the mint, 
to conform in the minutest fraction to values expressed in 

In 1770, a new coinage of gold was made, at the rate of 44J guineas to 
the pound Troy. And of silver, at the rate of G2 shillings to the pound 

In 1797, a new gold coin was issued, weighing 1 dwt. 19j'5g'g''o grains, 
which was proclaimed current at 7 shillings.^ 

In 1816, it was enacted by Parliament that silver should be coined into 
6G shillings to the pound Troy; crowns, half crowns, and sixpences, to be 
at the same rate. Silver was not then worth GG shillings the pound, though 
made a legal tender at that rate. This over-valuation has saved the British 
silver coinage from exportation, and from the melting pot; whilst its being 
restricted, as a legal tender, to 40 shillings has prevented any abuse from 
its being offered in large sums. This coinage was completed in 1817 ; and, 
by proclamation of that date, it was ordained that these new coins should, 
on and after the 13th of February of that year, be lawful money of Great 

On the 1st of July of the same year, a new gold coin was made current 
by royal proclamation: — "Each piece was to be of the value of 20 shil- 
lings, and of the weight of 5 dwts. S/j^j grains ; the piece to be called a 
sovereign, or 20 shilling piece, and to pass and be received as of the value 
of 20 shillings of lawful money of Great Britain and Ireland, in all pay- 
ments whatsoever." ^ 

In May, 1821, a royal proclamation was issued, repeating the above order 
as to the value and weight of the sovereign. On the accession of William 
IV., the value and weight of the gold and silver coinage was again esta- 
blished as above. 

On the 8th of July, 1838, in the second year of Victoria, the value and 
weight of the gold coins were declared to be as follows: — Double sove- 
reigns, 10 dwts. 5 grains ; sovereigns, 5 dwts. 22- grains ; half sovereigns, 
2 dwts. 13| grains. This exhibits a slight decrease in weight, the legal 
price being the same.^ 

' Ruding's Annals of Coinage, vol. ii. pp. 82-3. ^ Ibid. p. 96. 

' Ibid. p. 116. • Ibid. p. 121. ' Ibid. p. 132. 


money of account. Undoubtedly, the expressions of value thus 
affixed to specific quantities of gold and silver were regarded as 
perfectly definite and intelligible. The meaning of the royal 
proclamations, and acts of Parliament, were fully comprehended, 
whether they declared a guinea to be of the value of 20, or 21, 
or 22, or 25, or 30 shillings. The language of the money of 
account was used, therefore, to mark and designate the legal 
value of any particular coin. It was, in fact, the only means 
the public authorities had to make known the value of a coin ; 
for, after coins are once introduced, the people lose the habit 
of expressing the value of the precious metals by weight. They 
take the fixed weight in the coins, and the price fixed by law, 
and thus lose sight of the distinction between coins and money 
of account. 

Whether the original subdivision of the pound of silver, in the 
English and French coinage, was governed by a money of account 
then existing, we need not inquire; but it is very certain a money 
of account proceeded from that coinage. If the coins at first 
only corresponded with known weights, and if they were passed 
merely as equivalents, by specific excliange, for other articles, 
that state of things only lasted until pounds and shillings, or 
sols, came to be impressed on the public mind as a money of 
account ; and from that time the coins would be, and were really 
valued in the money of account. All prices thereafter would bo 
expressed in money of account, and coins would be merely pieces 
of gold or silver, with a public certificate of weight and quality, 
subject to rise and fall in price as any other commodity : that 
is, if any change in price or market value took place, the money 
of account would register it, as in the case of other articles. 
But if, in this state of things, the government again intervened, 
and, availing itself of the already formed money of account, 
decreed that certain coins should be a legal tender at a ceriaiu 
rate or price, then, from that time, the law made those coins 
receivable for a fixed sum or price, whatever may be their 
actual value. From that time their variations in market value 
could only be followed by those skilled in the mysteries of foreign 
exchange, or who were familiar Avith the necessary distinctions 


between coins and money of account. The fact that a coin was 
made, by law, a tender for the same amount of debt, however its 
value might change, would have strongly tended to prevent such 
coin from varying in price. The law in such cases, however, can- 
not permanently give a value to coins much above the intrinsic 
worth of the metal contained in them. Every attempt at this 
has failed. The money of account, in such cases, may be de- 
stroyed and reconstructed according to the new coinage ; but if 
not, it will ultimately vindicate its functions, and both mark and 
express the true value of every coin, whatever the alterations it 
may have undergone. It is true that a coinage used for the 
purposes of change may, to a small amount, be sustained by law 
at a point above its intrinsic value, as is the case now with the 
English silver coinage, which is a legal tender to the amount of 
only forty shillings, and of our silver coinage under a dollar. 
And this may, no doubt, be done in the same way, and for the 
same purpose, anywhere, if the over-valuation does not exceed 
the cost of coinage. To this extent only, indeed, can coin be 
rescued from the laws which govern bullion. Where coin is 
occasionally employed in the large operations of commerce, it 
has ever been, and must ever be, mainly regarded as bullion. 

The test of exportation must always bring it to its market 
value as bullion. The moment it becomes, in the course of trade 
or foreign expenditure, the interest of merchants to export 
bullion, it must go, and it can only go at its value as bullion. 
The mints of France, England, and other countries, have been 
employed for centuries in coining gold and silver, only to find 
their coins passing from one to the other for recoinage. Im- 
mense sums have thus been wasted in the expenses of coinage, 
for no good end whatever. Coins are only useful in the retail 
trade, and they can only be retained in circulation by placing 
upon them the full expense of coinage. It is perfectly right 
that the retail trade, which rccpiires these coins, should bear 
the whole expense of coinage ; the convenience and advan- 
tage of coins in that trade fully justifies a deduction from 
the coins of the full cost of the labor bestowed upon them. 
But, in large operations in the precious metals, coins are 


not needed ; and the expense of coinage is, therefore, -wholly 

In small transactions coins are not only useful, but nearly 
indispensable ; they have, therefore, a special value for that 
purpose. In large transactions ingots are more convenient than 
coin, because weighing is less troublesome than counting ; be- 
cause there is less danger of counterfeits ; and because there is 
no complication between the legal and the market price. 

It results, from this view of the subject, that coinage should 
be confined, as nearly as possible, to the amount required for 
the retail trade ; that, to prevent its being melted at home or 
recoined abroad, the whole expense of coinage should be de- 
ducted from the coins ; that the legal tender of coins thus over- 
valued should not exceed a small sum, in coins of silver, and an 
amount somewhat larger, in coins of gold. This being arranged, 
both gold and silver, in bars assayed and stamped at the mint, 
should be a legal tender, at the market price, in payment of all 
debts. Foreign coins should of course be regarded as bullion, 
and bo a legal tender at the market rate. 

With this very simple and natural arrangement, an abundance 
of coin might at all times be secured for the retail trade ; be- 
cause it would never, in the first instance, be sought for exporta- 
tion. The precious metals, freed from arbitrary valuations by 
law, would in all large transactions fall into the regular chan- 
nels of trade, and become subject to the laws of supply and 
demand. None of those extraordinary and often mysterious 
movements in bullion and coin, which now frequently take 
place, could occur ; fur the price of gold and silver would be 
governed constantly by the exigencies of the demand. "When 
required to liquidate a balance of trade, it would be purchased 
just as bills of exchange are for the same purpose. There is no 
more reason why he who must remit for goods purchased in 
foreign countries should have gold or silver at a fixed price, 
than that he should have flour or cotton, if he find it for his 
advantage to nuike his remittances in those commodities. Under 
such regulations, no country could drain oft" the precious metals 


from anotlicr, by any device, without paying the price caused by 
their demand. 

• The difficulty of ascertaining the price of gold and silver may 
seem to be a serious objection. All ■vvho are familiar with deal- 
ings in bullion know that this is in reality no serious difficulty, 
as nothing is more easily ascertained in trade than the price of 
bullion ; and it would be still more easily known, if all opera- 
tions in bullion were only at the market price, instead of being 
complicated with coins upon which the government has placed a 
fixed price. The fluctuations of bullion, especially in the great 
marts of foreign trade-, would be greater than under the present 
system, as they should be, for they should obey the law of 
prices. As no man would be disposed to keep the precious 
metals idle, because they are unproductive, they would be con- 
tinually pressing on the market when the demand was small, 
and prices would recede ; so, when the demand was large, 
buyers would advance the price to obtain the required supply. 
But these advanced prices would only be paid by those who 
needed them. All others would be unaffected by the advance. 
Just as high rates of interest or exchange affect mainly those 
who borrow money, or purchase bills of exchange. In truth, no 
difficulty of ascertaining the market price of bullion, if left free 
to find its own rate, could be compared with the difficulty of 
adjusting mint prices so as to avoid, at times, the exportation 
of coins, or their being melted down, if under-valued, or of their 
being thrown back into the circulation in undue quantities when 
over-valued. The difficulties of the fixed price of coins have, 
indeed, exceeded any that could arise under the system pro- 
posed : under the system of fixed prices, the whole subject 
becomes too complicated for the comprehension of any but the 
shrewdest bankers and dealers in bullion, who become thus 
enabled to seize upon advantages and profits which do not 
belong to any regular operation of commerce. When the mar- 
ket price of bullion shall be the law of all its movements, every 
business man Avill understand why it goes and why it comes, 
and may govern himself accordingly, so far as his interests may 
be involved. There is no more reason, beyond the mere de- 


mands of the retail trade, for fixing the price of gold and sil- 
ver by law, than for fixing the price, in the same "way, of bread 
and meat. 

^ 2. Coinage — French coinage — Debasement, frauds, clistnrhed money of 
account — System of the United States — Act of Congress of 1792, 
adopting the dollar tinit — Price of gold fixed — Results — Act of June, 
1834, reducing weight of gold coins — liesidt — Act of February, 1853 — 
Silver coinage — Ingots of gold — Export of silver. 

We have, for the sake of distinctness, and to avoid confusion, 
drawn the preceding illustrations chiefly from British coinage 
and money of account. The lessons to be drawn from those of 
France are not less instructive. We need not, however, refer 
to them for the same purpose. The debasement of the coins Avas 
carried much farther in France than in England. The coinage 
and moneys of account, in both countries, began with the pound 
weight of silver — in France the pound marc, and in England 
the tower pound. In France, the livre of 1789 contained only 
the seventy-eighth part of the original livre of Charlemagne, in 
the year 800 : in England, silver coins which would be the equi- 
valent of the pound unit, or pound sterling, exceed only by a 
little a quarter of the original quantity. 

Such a succession of frauds as this debasement of the French 
coins implies must have inflicted upon the people a series of 
losses equal to the devastations of many civil wars. Whatever 
profit kings or governments may have gained by frauds of this 
kind, must have been more than equalled by those of bankers 
and merchants. What the government gained would always, in 
fact, be the least part of what the people would lose ; for, upon 
such occasions, the sharks found among money-changers seize the 
occasion to fleece both government and people. Whenever the 
money of account is disturbed, as it always is when a currency 
of debased coins is enforced by authority, or, in modern lan- 
guage, made a legal tender, the language of prices becomes so 
confused, that men no longer understand each other. Very few 
can so clearly comprehend the actual state of things as to guard 
their own interests ; some there are, however, who, from position 


and special skill, are always able not only to ward off the mis- 
chief, but to make such gains, on occasions of this kind, as no 
legitimate business ever affords. 

What such frauds have done in France, they have done every- 
where else. The law of legal tender, or enforced currency, is 
the basis on which these frauds have rested. Without such aid, 
they could never have been so largely perpetrated : coins 
reduced in weight, or with undue portion of alloy, would have 
found, very soon, their true market value, and been kept to it. 
A few might be deceived, but the money of account, being un- 
disturbed, would at once serve to mark distinctly, and express 
openly, the proper price of the altered coin. 

All such debasements of coin by authority proceed upon the 
ground that the government having previously fixed the price of 
certain quantities or coins of the precious metals by law, it is 
safe and practicable to make a less quantity bear the same 

The history of coinage for nearly ten centuries is a history of 
public frauds and private injuries ; of confusion in prices and in 
moneys of account ; of immense gains, as well as losses, by gov- 
ernments, and still heavier losses, without any gains, by the 
people. These mischiefs may be credited, without hesitation, to 
the continued effort to maintain a fixed price and forced circula- 
tion for coins, and to the fraudulent debasements to which these 
efforts opened a door, and offered a temptation. This history 
affords no lessons more worth remembering than that govern- 
ments should not and cannot fix the price of the precious metals, 
even in coins, beyond the demand of the retail trade : that there 
should not be any other price for the precious metals, whether 
coined or uncoined, in the large transactions of commerce, than 
that which is made by the law of prices and the course of 
trade. The history of money shows that few greater gi'ievances 
can befall a people than a deranged coinage and money of 
account : few evils have drawn from the masses of a nation 
more bitter complaints. But for the great advantage of coins 
in small transactions, it had been far better that no mint had 
ever existed. 


It should not be lost sight of, then, that a fall in the price of 
gold or silver, where they are made a legal tender at a fixed 
price, is equivalent to a corresponding debasement of the coins. 
Although no government may be responsible, the mischiefs are 
equally great, and fall largely upon the unwary, or those who 
cannot help themselves. In such cases, also, sharp and skilful 
dealers in money reap a vast harvest of profits before people at 
large are on their guard. 

The period of public frauds by coinage had nearly elapsed 
befpre our nation came into existence. The progress of civiliza- 
tion had put an end to the deliberate issue of counterfeits of 
their own coins by the governments of Europe. Other modes 
of extracting money from the people were discovered, more effi- 
cient and less disgraceful. But with the frauds the difficulties 
did not disappear, and these were found to be sufficient to puzzle 
the shrewdest statesmen of the day. Unfortunately for clear 
views of the subject, the policy of a fixed price for coins was 
persevered in with a pertinacity which denoted that it was 
regarded as the indispensable accompaniment of a sound system 
of coinage and money. It became a settled opinion, that the 
system of coinage which was adapted to the merest retail trade 
would equally suit the larger operations of foreign commerce 
and wholesale transactions. As Avell might men have attempted 
to carry on the transportation by sea and land, which the larger 
movements of trade involve, in their pockets, as to have resorted 
to the same medium of exchange, managed in the same way, for 
the largest and smallest transactions of commerce. 

The mischievous absurdity of a fixed price for the coins of a 
country has never been accepted by merchants and bankers in 
large transactions, except to take some advantage by it. Fluc- 
tuations in the price of the precious metals operating upon coins, 
as well as bullion, widely and effectively, have too long been a 
mystery to the people at large. Coinage, without preventing 
fluctuation, assists hi concealing tlic cause ; and fluctuations 
defy and derange all the nicely-adjusted valuations of the 
mints of the world, which nuiy one month be correct to the 
nicest attainable fraction, and in the next be so far Avrong as to 


drive the wliole of a coinage of gold or silver out of a country 
in a few months. Men are lost in conjectures at sucli move- 
ments, ■\vlicn the productions of a score of years of the vast 
and midtifarious machinery of a mint, millions upon millions of 
exquisitely executed coins, are carried away, and without hesi- 
tation consigned to foreign crucibles to be recoined, and not 
long afterwards subjected to a similar process at another mint. 
Thus modern mints arc kept in constant activity, using each 
other's finished products as raw material. 

In all this policy and its results, the United States have had 
their full share. The earliest legislation of Congress, on the sub- 
ject of a mint, Avas the act of April, 1792. By this act it is 
established : — " That the money of account of the United 
States shall be expressed in dollars or units, dimes or tenths, 
cents or hundredths, and mills or thousandths ; a dime being 
the tenth part of a dollar, a cent the hundredth part of a dol- 
lar, &c. ; and that all accounts in the public offices, and all pro- 
ceedings in the courts of the United States, shall be kept and 
had in conformity to this regulation." ^ 

This is, perhaps, the first time that a money of account was 
ever enacted or established by any public authority, as an act 
of power. Moneys of account had, in all nations, grown up in 
the commercial and mental habits of the people. The dollar 
unit was employed by Spanish nations, to some extent, as a 
money of account ; but it was not that chiefly used. The 
Spanish dollar, however, was a well-known coin ; and the dollar 
unit was one familiar to many people of the United States 
before and during our struggle for independence. It was 
wisely adopted as the unit of our money of account, because 
of the great diversity of moneys of account prevailing in the 
States at that time, and the great need of having one uniform 
system of reckoning and keeping accounts throughout the 
whole nation. It was wisely chosen, because no other could 
have been brought into use so soon. It required, however, 

' See Laws of the United States, and History of Mint Regulations, in 
Adams' Keport on Weights and Measures, pp. 143 to 152. 


with all this previous familiarity, from twenty-five to forty 
years to introduce the present system into general use.^ 

The word "dollar" employed as above by the Congress of 
1792, and made the unit of our money of account, had a mean- 
ing perfectly apprehended at the time. It was not the dollar 
coin which was made the unit ; the word dollar was made the 
unit, and this unit was made decimally divisible. This word 
dollar '• expressed" a value which was then, as it is now, well 
understood. It was understood just as the term pound was 
in Pennsylvania. If Congress had enacted that the tei'm 
pound, as employed in the currency of Pennsylvania, should be 
the unit, it would have been perfectly comprehended, though 
there never had been a coin of silver or gold corresponding to 
that pound, or half, or quarter, or any decimal part thereof. 

This act of Congress provides for a coinage of both silver and 
gold: — "Dollars, or units, each to be of the value of a Spanish 
milled dollar, as the same is now current, and to contain 371fj 
grains of pure, or 416 grains of standard silver." Other silver 
coins, less than a dollar, to be in proportion. "Eagles each to 
be of the value of ten dollars, and to contain 247g grains of 
pure, or 270 grains of standard gold." Half eagles to be in 
proportion. This statute then declares and establishes that 
371yg grains of pure, and 416 grains of standard silver, shall be 
current as money at the price of one dollar, the value of the 
unit of the money of account. Also, that the price of 247g 
grains of pure, and 270 grains of standard gold shall be ten 
dollars, and that the price of half of those quantities shall be 
five dollai's. It further declares: — "That the proportional 
value of gold to silver, in all coins which shall be current as 
money within the United States, shall be as fifteen to one, 
according to quantity in weight of pure gold or pure silver ; 
that is to say, every fifteen pounds of pure silver shall be of 
equal value, in all payments, with one pound weight of i^ui'o 
gold, and so in proportion." 

' See oxtractH from " Bankers' Magazine," ante, page 88, for a more 
full account of the adoption of the dollar unit. 


This statute not only fixes and expresses the price of silver 
and gold coins in the money of account it adopts, but it fixes 
the exact proportion between gold and silver, and enacts that a 
pound of gold shall be -worth fifteen pounds of silver. In 
this, Congress acted in accordance ■with prevalent opinions of 
that day — opinions not entirely surrendered by many, even to 
this time. It is obvious, however, that the proportion between 
gold and silver cannot be settled by any statutory regulation. 
It must remain subject to the course of trade, and whatsoever 
else influences the market price of one or the other of these 
metals. It belongs neither to the authority, nor to the power 
of any one nation to adjust that proportion by law; nor, indeed, 
is it in the power of the political authorities of all nations 
combined to make or enforce any such arbitrary adjustment. 
The whole subject belongs to trade, and the markets of the 

The language of the statute to which we have referred, fixing 
the price of 247g grains of fine gold at ten dollars, could only be 
operative in the United States, and even there only to a limited 
extent; so, also, the provision that the price of oTlf^^ grains 
of pure silver shall be one dollar. It is true that these fixed 
prices, taken in connection with the further provision, "That 
all the gold and silver coins which shall be struck at and issued 
from said mint shall be a lawful tender in all payments whatso- 
ever, those of full weight according to the respective values 
hereinbefore declared, and those of less than full weight at values 
proportionate to their respective weights" — must have been 
regarded as valid in the United States, to the extent of enabling 
debtors to discharge debts at those fixed rates of gold and silver. 
But they could not compel men to accommodate all their prices 
and dealings to these fixed statutory rates. They were only 
binding as to debts contracted ; and men might, if they chose, 
refuse to buy or sell on credit with reference to those rates. In 
all the large operations of commerce and exchange, these statu- 
tory prices of gold and silver are disregarded, and that of the 
public market governs. 

The result, after this enactment, proved that the adjustment 

ACTS OF CONGRESS OF 1834 AND 18 T, 7. 143 

between gold and silver Avas wrong, and that the price of gold 
was fixed at a rate lower than the current price of the market. 
As a consequence of this legislative error, gold ceased to circu- 
late as money in the United States in any considerable quanti- 
ties. This continued to be the case down to the year 1834, 
when the price of gold was corrected. By a statute bearing 
date the 28th of June, it was declared that the eagle should 
thenceforth be coined to weigh 258 grains, instead of 270 grains 
as before, of which 232 grains were to be fine gold, insteiid of 
247-J as before. This statute fixed the price of 232 grains of 
fine gold at ten dollars, which Avas an advance upon the former 
rate of over six and a half per cent. ; that is, that proportion of 
fine gold was, in the coinage of 1834, withdrawn from tlie ten 
dollar piece. This rate of gold raised the proportion of gold to 
silver to about sixteen for one. The provisions of this act were 
incorporated in that of January 18th, 1837, which is a consoli- 
dation of the laws pertaining to the mint. It makes tlie new 
gold coins a legal tender for the same sum expressed in the 
money of account, for which they were a legal tender before the 
weight was thus reduced. 

Under this adjustment, gold and silver coins circulated con- 
currently for some years, and the coinage of gold was quadru- 
pled. But the mischief of a fixed legal price was again 
strongly exemplified when the gold began to come in freely 
from California. The tendency of this large addition to the 
supply was to reduce the price. Whilst the law affected to hold 
the price of gold unchanged, tlie sudden and rapid departure 
of the silver revealed unmistakcably the fact that gold had 
fallen in price in the general market, and that it was now 
over-valued in our coinage. This cause has continued to ope- 
rate, until all our own silver coins, and all the jNIexican, South 
American and Spanish coins of full weight have been exported. 
For a time we had no silver coins but the worn foreign and 
domestic coins, which were deteriorated to the extent of from 
five to twenty per cent. The foreign deteriorated silver coins 
had previously almost wholly disappeared; but the departure 
of the full weight coins speedily brought them again to light. 

144 ACT OF CONGRESS OF 18-3 3. 

They became a necessity ; but were, nevertheless, such an 
annoyance as en lied for another act of Congress. 

The act of the 21st of February, 1853, provided for a coin- 
age of half dollars, quarters, dimes and half dimes ; it pre- 
scribed that the half dollars should be of the weight of 192 
grains, instead of the former weight of 20Q^ grains, and the 
lesser coins in that proportion ; but it only made these coins a 
legal tender to the amount of five dollars. This was a with- 
drawal of more than seven per cent, of the fine metal from the 
half dollar coin, and the lesser coins ; and, in fact, fixed the 
price of the coins thus affected over seven per cent, higher than 
their previous legal price. This measure was adopted and car- 
ried into effect in time to save the small change of our retail 
trade from being wholly carried off. The demand for small 
money has kept these coins up to their nominal value ; and 
their high nominal rate has prevented their being melted 
down, or exported as bullion. The principle which dictated 
this successful measure is that which ought to govern the 
whole policy of coinage, so far as coinage is expedient. Of the 
great coinage of California gold which has so magnified the 
operations of our mint of late years, but a small part retains 
the form and weights of our coins. This wasteful policy has at 
length in part been abandoned, and gold is now issued in bars 
or ingots. 

The ingots from the mint being all of the same quality or 
standard, the price depends wholly upon the course of trade. 
The market price of bullion in England, France and the United 
States mainly governs all the large operations in the precious 
metals in these countries. Yet the fixed legal price has, in 
some conditions of the market rates, a disturbing effect, the 
extent of Avhich can scarcely be estimated. The vast and 
extraordinary drain of silver from America and Europe to Asia 
and Africa, which has been going on for several years, and 
which is so much lamented by many, could not have taken 
place but for the policy of the fixed legal price for gold. That 
gold has depreciated, to some extent, under its extraordinary 
influx from Australia and California, is just as certain as that 


the silver has departed, and is departing. But whilst the laws 
are ineffectual to prevent gold from falling in price or value, 
they are efficient in enabling the dealers to exchange it for the 
silver which is exported. So long as the law makes the depre- 
ciated gold a legal tender in payment of all debts, so long 
debtors will use it to pay their debts. A depreciated medium, 
if it circulates at all times, and especially if it circulates under 
the sanction of the law, will supersede every better medium. 
Previous to 1834 we under-rated gold, and we could keep none; 
now we over-rate gold, and we have nothing else. Thus the 
rates fixed by law on the precious metals, beyond the demand of 
the retail trade, are only available for disturbance and evil, and 
for no good purpose or end. 

Under the rule, or policy, of allowing the market price to 
govern the whole movement of the precious metals, a great dis- 
placement, like that of the departure of silver from Europe, 
could never take place. The price of silver, as compared with 
gold, would rise according to the demand, so as eventually to 
check the movement. The two metals, disturbed in their mu- 
tual relations, would immediately find a proportion suited to the 
occasion. If the present policy of the Western powers is per- 
severed in, and if the supply of gold continues unabated, their 
whole stock of silver must be exported. They will continue to 
accept gold, which has greatly fallen in value, for their silver 
at the old rate. It will not be difficult, hereafter, to estimate 
the loss which this great exchange of silver for gold is entailing 
upon the countries which are its victims. It cannot but be 
enormous directly, but, perhaps, indirectly far heavier. If the 
depreciation of gold continues, the holders of gold will have the 
whole loss to bear ; and as our silver will be gone, we shall be 
the losers. All the moneys of account, in countries making 
gold a legal tender, will be changed. The whole range of 
prices will have to be modified, and immense losses will be sus- 
tained upon all the investments payable in dollars, pounds and 
francs. If this change could be fully appreciated and under- 
stood by those whom it may affect, the mischiefs would be less, 
for much might be done to distribute and equalize the loss. 


But heretofore it lias been the case that such occasions are 
seized upon bj the knowing ones to enrich themselves at the 
expense of the community. 



From an Artidc, h'j the Autlior of this Volume, in "Hunt's Merchants' 
Magazine,'" of April, 1852. 


"When gold had thus been introduced into general use, it soon pre- 
sented the difBculty of light coins. It became a regular business with a 
certain class of dealers in coins, to seize upon the heavy or new coins as 
fast as they were issued from the mint, by purchasing them at a slight pre- 
mium, which they recovered, with a fair profit, by abstracting from the 
heavy coins as much as they safely could, and in that state returning them 
to circulation. They were always receiving heavy coins, and always pay- 
ing away light ones : the mint was furnished with abundant employment 
in recoining the same gold, and the clippers had a regular harvest in their 
business. The precautions in the recoinage of 1774 in a good degree 
avoided this evil ; and the Earl of Liverpool, to whom the nation was in- 
debted for that measure, appears not to have lost sight of the subject, until, 
in 1805, he addressed his well-known letter to the King, since called ' A 
Treatise on the Coins of the Realm.' This is very elaborate in its detail 
of the facts on which he founded his proposed measure. He admits that 
the change he advocates should not be made upon slight grounds. It was 
a change from the double standard to one of gold, with an over-valuation 
of silver in the coinage, but restricting the amount to be paid in it to forty 
shillings. Gold coin was to be made a legal tender at the rate of £3 VJs. 
\Ohl. per ounce, and the sovereign, which was to represent the pound, was 
made to correspond with that rate per ounce. To induce the adoption of 
this measure. Lord Liverpool drew up his letter, of 236 quarto pages, in 
which hfe reviews the whole history of British coinage, and adds an appen- 
dix, containing an account of the relative values of gold and silver among 
the ancient Persians, Greeks, and Romans. This performance is very relia- 
ble, as far as the facts and estimates made in it are concerned; but its 
authority in doctrine has been called in question. lie had, however, chiefly 
in view the adoption of the measure: he did not attempt to produce a 
general and scientific work upon coinage. lie adopts the old notion, that 


the 'money or coin of a country is the standard measure by which the 
value of all things bought and sold is regulated and ascertained ; and it is 
in itself, at the same time, the value or equivalent for which goods are ex- 
changed, and in which contracts are generally made payable.' This pro- 
position, so far as money is alleged to be a measure of value, is rejected by 
M'Culloch, and other noted authorities. The former says: — 'A coin is 
merely a piece of metal of a known weight and fineness.' — ' It has been said 
to be both a sign and a measure of value ; in truth, it is neither.' — 'It is 
equally incorrect to call money a measure of value. Gold and silver do not 
measure the value of commodities more than the latter measures the value 
of gold and silver. When one commodity is exchanged for another, each 
measures the value of the other.' — Encijdo. BrUannica, Art. ' Money.' 
But whatever objections have been raised against the Earl of Liverpool's 
definitions, it is conceded that, since his measure was adopted, no proposi- 
tion should be entertained of another change. 

" The Earl of Liverpool having shown that silver was the real or practi- 
cal standard down to the beginning of the 18th century, alleges that it gra- 
dually ceased to be such, and that gold, during that century, became the 
actual standard. In his language, ' Gold coins are now become, in the 
opinion and practice of the people, the principal measure of property.' ' 
'And it may therefore be inferred that, in the opinion of the dealers in these 
precious metals (who must be considered the best judges on a subject of 
this nature), the gold coin has, in this respect, become the principal mea- 
sure of property, and, consequently, the instrument of commerce.' He sub- 
joins, ' that the foreign nations who have any intercourse with us, and even 
those who deal in the precious metals of which our coins are made, concur 
in this opinion.' At a subsequent page (170), he states this position, and 
illustrates it at large. ' The gold coins have, in fact, become, for almost a 
century, the mercantile money of the kingdom.' 

" In answer to the objection, ' That, by declaring the gold coin to be at 
present the principal measure of property, an alteration will be made in all 
bargains, and in the terms of all covenants and contracts which were con- 
cluded when the silver coins were understood to be the principal measure 
of property,' he admits 'This objection might have some weiglit, if the 
change had happened of late years only ; but it has been already shown 
that it has existed, and that all payments have been regulated in conformity 
to it for almost a century. This objection might also have weight, if this 
change had been brought about by the authority of government. It has 
been shown that it was brought about, not by the authority of government, 
but by the course of events, with the acquiescence, and, I may say, the 
general consent of the people.' (p. 173.) He dwells upon this gradual adop- 
tion of the gold standard by the people, and argues, from a great variety of 
facts and considerations, that his proposition involved no actual change in 

' "Treatise on the Cuius of the Reiihn," pp. 139, 145. 


the accustomed use of money; that, consequently, contracts could not te 
affected, tlio measure being chiefly a legal recognition of existing mercan- 
tile usage. 

"The Earl of Liverpool, in support of his plan, lays no small stress upon 
the fact that Great Britain, being the chief commercial mart of the wq^ld, 
it is especially fitting that, -vvhilo people less rich should retain silver as 
their standard, a country so important should adopt gold. This idea is 
repeated, in the course of his work, in a way that shows it was a favorite 
notion. The glory of a gold medium, however, was fraught with mischief 
which Great Britain, with all her wealth, could neither wholly prevent nor 
repel. By the adoption of his plan, the Bank of England was compelled to 
redeem its notes in gold — a commodity subject to exceeding irregularity 
of demand, and consequent fluctuation in value. Every war and every com- 
mercial crisis on the continent of Europe brought a demand for gold on that 
bank. Gold being so much more readily transported than silver, every un- 
favorable balance of trade among neighboring countries might bring a cir- 
cuitous demand upon an institution which was the only one in Europe 
compelled to pay in gold at a fixed price. Every unfavorable harvest, and 
consequent large importation of wheat, entailed a corresponding demand 
for gold, which could be carried off with facility, when silver might not have 
been touched. In all such matters of payment, the party receiving makes 
choice of that which suits him best; and certainly no greater facility can 
be afforded to a foreign creditor than to pay him in gold, at a fixed rate, 
from which it cannot rise, however brisk the demand. Thus was the Bank 
of England made the great depository of gold, to which it flowed from all 
quarters when not wanted, and from which it was taken to any quarter of 
the world where there might be any special demand or occasion for it. 
There could have been no objection to this ebbing and flowing, if the bank 
had been merely a dealer in gold bullion, buying at a low rate when it was 
not in demand, and selling at a profit when there was a demand. The bank 
had no privilege but that of purchasing all that came at £3 17s. 9d., and 
paying to all that demanded at the rate of £3 175. lO^d. j)cr ounce; but being 
the issuer of the principal paper currency of Great Britain, they were bound 
to redeem (after the resumption of specie payments in 1822) at that price. 
It was a hazardous experiment to make the Bank of England the only place 
at which gold could always be had at a fixed price, and to make gold the 
basis of the English bank-note currency ; so that every regular and irregu- 
lar demand for gold at once affected the condition of the British paper cur- 
rency, and through it the whole industry and trade of the country, although 
neither may have had anything to do with the demand for gold. Those who 
are familiar with the history of that bank, which has, perhaps, been more 
wisely managed than any similar institution, can readily recall instances 
when the bank, to save their gold, were obliged to restrict their issues, until 
distress, injury, and ruin befell thousands upon thousands of people who 


had no share in the cause of the mischief. For ever}' million of gold that 
the bank could thus retain in their coffers, they would be compelled to with- 
draw very many millions of currency from the ordinary channels of busi- 
ness. If this evil is inseparable from a paper currency, it was surely unwise 
to aggravate it by subjecting the Bank of England to the payment of notes 
and deposits in that metal which is most easily carried off, and most liable 
to variable and extraordinary demands ; and, moreover, to redeem notes at 
a fixed rate in an article notoriously fluctuating in its value all over the 
world. If the bank has been able to struggle through all the commercial 
storms which have swept over the world since 1822, it is well known at 
what repeated and immense sacrifices to the nation; and that, upon a recent 
occasion, to resort to the Bank of France for aid became a matter of neces- 
sity. A very large portion of llie evils of this struggle wOuld have been 
saved, if the bank had been allowed the privilege of paying in silver; and 
still more, if permitted to pay in gold at a market instead of a mint price. 

System of coinage in the United Slates — Double standard — Proposed adop- 
tion of single standard of gold, as a reined g for scarcity of silver — Reduc- 
tion in the value of our silver coins. 

"We have already adverted to our adoption of the dollar for a unit of 
computation and money of account, as a measure justified by the necessity 
of reconciling the currencies of the different States, and also by the fact of 
its being ah-eady familiar to the minds of the people. In fact, although 
diffei'ent moneys of account prevailed in difl'erent groups of the States, they 
were all about equally familiar with the Spanish coin of a dollar, and its 
parts ; and these were the only coins with which they were familiar. They 
had long estimated in pounds, shillings and pence, and, when they em- 
ployed them at all, paid in foreign coins. There was, therefore, a very 
good preparation in the employment of these coins for more than a century 
by the colonists, for the adoption of the dollar as the money unit. This 
■was done under the confederation, although no mint was established, by 
act of Congress, until April, 1792. By this statute it was enacted : — 
'That the money of account of the United States shall be expressed in dol- 
lars or units, dimes or tenths, cents or hundredths, and mills or tliou- 
sandths.' ' That the ' dollars or units each be of the value of a Spanish 
milled dollar, as the same is now current, and to contain STlj^j grains of 
pure, or 416 grains of standard silver.' - By the same law the eagle, then 
first provided for, was to be 'of the value of ten dollars or units, and to 
contain 247;^ grains of pure, and 270 grains of standard gold.' It is now 
nearly sixty years since the passage of this act, and the dollar coin then 
ordered and provided for still contains the same quantity of pure silver — 
37U grains — and so far its value remains unchanged. By degrees it has 

' Section 20. ' Section 9. 


expelled the old moneys of account ; it being rather rare, at this day, to 
hear of pounds, shillings and pence, except in the State of Ne\Y York, in 
■which the Spanish eighth of a dollar corresponds to the shilling, and the 
hundredth to the penny. The fact of the people there adhering to the terms 
shilling and penny, against the usages of the rest of the country, shows with 
what pertinacity men cling to their money of account. The only alteration 
which has taken place in our established dollar coin was by the act of Con- 
gress of 1834, which directed that 3J grains of the alloy be withdrawn, 
reducing its weight from 416 to 412j grains. The coins of both metals 
were, by the act of 1792, to be a legal tender ; the dollars at ' their current 
value, and gold at the rate of 24J grains for a dollar.' As it almost invaria- 
bly happens, where the double standard prevails, one of the metals was 
over-valued, or one was under-valued, as compared with the current market 
value in commerce. In our case the gold was under-valued, for it never 
circulated concurrently with silver until after the act of 1834, which raised 
the mint price of gold over GJ per cent, by rating 23//^ grains of gold at 
the value of a dollar, instead of 24| grains, as fixed by the act of 1792. 
Even after this increase of 6j per cent, in the mint price of gold, it failed 
to become a currency in this country until it began to flow in so rapidly 
from California, that an actual depreciation of several per cent, took place. 
The consequence was, that the silver in our banks began to be rapidly 
shipped off to Europe — a drain which did not cease so long as silver could 
be obtained. It is, in truth, impossible to adjust the relative value of gold 
and silver by any legal enactments, in such manner as to overcome the in- 
fluence of the market rates of those metals. It has long been deemed absurd 
to fix the prices of other commodities by law ; perhaps the time is not dis- 
tant when it will be regarded as absurd to fix an unchangeable price upon 
an ounce of gold, as upon a bushel of w^heat, or a day's labor. 

" The history of commerce certainly discloses that the changes in the 
value of gold have been remarkable and frequent in all periods of which 
we have authentic records, and not less so in the last half century. We 
have already mentioned that, between 1802 and 1810, gold rose to 20 per 
cent, above the mint price ; but we add, to show the superior steadiness 
of silver, that the variation in price of Spanish dollars at the Bank of Eng- 
land was less than 2 per cent., and in that period the bank purchased to 
the extent of seventy millions of ounces. 

" It has been proposed, for the purpose of remedying the scarcity of sil- 
ver, which the recent depreciation of gold has withdrawn from circulation, 
to reduce the weight of standard silver in our dollar from 4122 grains to 
384 grains ; that is, to take from it 25y'"g^jy grains of pure silver, thus re- 
ducing its intrinsic value 6.91 per cent. It is said this debasement is only 
to be applied to the fractions of a dollar. It may be that no evil would 
ensue from such a change, especially if confined to quarters, dimes, and 
half dimes, and if they were not made a legal tender beyond five, or, at 


most, ten dollars. The use of these small coins could scarcely impair the 
dollar unit. But the measure does not appear by any means commensurate 
with the evil. It would still be found that silver was scarce; and if these 
debased coins were increased in quantity beyond the mere demand for 
change, they would depreciate to their bullion value, and become a nuisance. 

"It appears more natural, as well as advantageous, to look for the remedy 
on the side whence the grievance comes. The scarcity of silver has arisen 
from the depreciation of gold ; and that by reason of its abundance, more 
than from any special demand for silver, or any increase in the value. In- 
stead, therefore, of disturbing our silver coinage, so intimately connected 
with our money of account, would it not be safer to confine any measure 
intended to meet the present difficulty to gold, the fall in value of which 
has occasioned the exportation of our silver ? If the matter had been un- 
derstood in time, a very simple measure would have prevented the shipment 
of silver. Gold had depreciated, but the legal price remained ; and the 
silver was rapidly carried off before the banks were supplied with gold, and 
before they were fully aware of the depreciation. 

" If, at the moment the silver began to disappear. Congress had inter- 
vened, and repealed so much of the act of 1834 as made gold a legal ten- 
der at the rate of 23jyj grains to the dollar, gold, which was flowing upon 
us from the Pacific, would have instantly sunk to its market value, and 
have become the preferable remittance, more especially as Great Britain 
adheres to a fixed price for gold. 

"A fixed relation between gold and silver, an established legal price for 
both on the assumption that they will not change in their relation to each 
other, and that the value of each must remain unchanged, is a policy so 
mistaken, that it should not stand long on any statute-book ; but, least of 
all, should it be upheld in the face of facts which clearly exhibit that one 
of the precious metals has actually changed its value materially, and must 
soon, by the inevitable laws of trade, undergo a more important change. 
It requires no very strong effort of thought to perceive that a people who 
attempt to uphold the price of a metal which has permanently fallen in 
value, will Ijo abundantly supplied with the article they continue to over- 
value. This very fact destroys what is called the double standard, and 
substitutes the depreciated single one. If this were the whole mischief, it 
would be small ; but tlie mass of the people continue to reckon and esti- 
mate in the long established money of account, whilst payments, until the 
proper remedy is applied, continue to be made in the depreciated coin. 
The double standard may exist for a long time without inflicting any spe- 
cial injury beyond the confusion of ideas which it creates; but when the 
fluctuation of either metal commences, injustice is flagrant on every side. 
It is as if the parties in trade were provided with one measure to make 
their purchases, and another of different capacity by which to make their 
sales; and this not according to a uniform practice, but according to every 


man's knowledge, cunning, capacity, and the grade of his morals. The 
double standard becomes, upon an occasion like the present, when not an 
intelligent doubt can be entertained of an early depreciation of gold, a posi- 
tive and impending evil of a magnitude not easily estimated, but which can 
scarcely be over-rated. As little time as possible should be lost in removing 
it, because in commei'ce, as well as in other occupations of life, 'coming 
events cast their shadows before ;' and because, while the shrewd and 
well-informed M'ill ' stand from under,' and avoid the mischief, the unwary 
and uninformed will be made to suffer and become the prey of those who 
can, under cover of law, make a business of fraud. 

"The double standard, absurd at all times, and specially objectionable in 
the anticipation of a considerable decline in the price of gold, is, however, 
immeasurably less objectionable than the adoption of a single standard of 
gold in our present circumstances, even when we leave out of view the 
money of account, and the infinity of commercial considerations connected 
with it, and regard the change to be made merely in the light of a standard. 
If it be, as most of the approved writers on money suppose, that prices are 
strict comparisons with coins — that sales are only made with reference to 
coins— what must be pronounced of the policy which rejects the metal 
■which is unmoved, and takes that for a standard which is in the very act 
of going down? AVith what degree of accuracy can the masses of people 
in the United States keep pace with the decline which may take place in 
gold? This decline may, at times, proceed by slow and imperceptible de- 
grees, and at times, according to the accidents or movements of trade, by 
jerks. In either case, but a very small number of men will be able to ap- 
preciate its downward progress. The public will only register it by their 
losses ; and their eyes will only open when it is too late. It is more than 
probable that the dealers in bullion In London would first perceive and take 
advantage of every step in this depreciation. 

"It would be a misfortune of no small moment if, in place of the double 
standard, our past system had been the single gold standard, as it is in 
Great Britain. We should now be trembling with apprehension of the de- 
cline of gold, and all the innumerable and injurious results which such a 
decline in the value of a standard metal imposes. That these apprehen- 
sions arc now felt in an eminent degree in England, is abundantly plain to 
all who arc observant of financial and pecuniary affairs in that country. 
Many there know that danger is imminent, and rejoice that the demand for 
gold on the continent postponed the expected mischief. But the gold is now 
returning, and the Bank of England is now stocked with it beyond all pre- 
cedent. This influx upon that bank must continue, unless partially inter- 
fered with by wars, or anticipations of wars, on the continent. So long as 
the bank continues to give, as compelled by law, £3 17.9. 9d. for gold, it 
will, under the depreciating process, flow there from all quarters of the 
world, until the government repeals this awkward obligation. 


"As this subject is viewed by many of the ablest men in Enscland, it 
seems surrounded with insuperable difficulties, and impenetrable darkness. 
And yet, if the doctrine and functions of a money of account were tho- 
roughly studied, the remedy for the whole anticipated evil would be far 
more simple and easy of accomplishment than many duties the government 
has to perform. Let the bank be released from the obligation to take gold, 
and let the mint price be repealed, that gold may take its value in the mar- 
ket with silver. The English money of account will safely and effectually 
register all prices and values, preserve unchanged all contracts, salaries 
and annuities, and permit the vast concerns of the British Treasury and 
British industry and trade to proceed undisturbed in their accustomed 
channels. It would be necessary to connect this measure, at no distant 
day, with another for the special protection of the money of account. The 
responsibility of vigilance, in regard to the money of account, might be 
placed upon the Chancellor of the Exchequer; constant observation of the 
value of silver bullion, and proper restraints upon the quantity of bank 
paper circulation, would keep the money of account unchanged. Expe- 
rience would show whether this system might not be continued indefinitely, 
and it would at least afford time to devise other appropriate remedies for 
the evil. If the money of account could maintain itself unchanged, with 
an almost exclusive paper circulation, during the first twelve years of the 
suspension of payments by the bank in 1797, surely the same, and even a 
much better result, could be obtained by a well-devised measure now, when 
the bank is able to pay every demand in gold. At all events, those who 
can repose no confidence in such an arrangement, might feel very safe if 
their bank paper was kept at par with silver bullion until time had pointed 
out some better plan. This would not be changing, as some may think, 
from, the gold to the silver standard; it would be simply dispensing with 
any standard, except the mint standard for coinage. And this, as we con- 
tend, is what the mental habits of trading people lead them to do, be the 
law of the money standard, or standard of payment, what it may. 

"It is difficult to conceive how any one could have thouglit of dispensing 
with our silver standard, and adopting the single gold standard in the 
United States, at this moment of expected depreciation of that metal, unless 
the suggestion came from England. That they may want companions in 
their trouble is not at all improbable ; but that we should volunteer that 
sacrifice is past comprehension. If England continues, in spite of common 
sense and commercial prudence, to pay the same price for gold after it be- 
gins to depreciate, she will receive it as long as she has anytliing to give 
for it, until she is bursting with gold at every pore; and when the plethora 
can be endured no longer, and the hour of depletion arrives, tlien a heavy 
loss will accrue, and ruin will overtake multitudes through its effects upon 
the Bank of England. 

"If the United States should adopt tlio single gold standard with our 


present legal or mint price, a portion of that loss would be thrown upon us. 
It is true, the laws of trade very often obviate, for a time, the natural con- 
sequences of unwise legislation, or the most absurd commercial blunders. 
At the present moment we are under such heavy indebtedness to England 
for goods imported in excess of the value of our exports, that we have all 
the advantage of the game in gold. We are paying in a depreciating 
metal ; but our merchants who are trading with California are receiving 
payment in the same falling commodity, If we adopt the gold standard 
now, we might not suffer immediate injury, owing to our indebtedness; but 
we should enter upon a game of agiotage and profit and loss with the Bank 
of England and the great merchants of London, in which, according to our 
past experience, we should come out heavy losers. The retention of our 
double standard, with a fixed price of gold, may involve many and serious 
mischiefs in our domestic trade, but cannot affect us injuriously in our 
foreign trade so long as we are indebted abroad, and our banks retain the 
privilege of paying in gold. In case, however, of a favorable balance with 
any country in the world, our remittances would all come in the depreciated 
metal. The further this subject is pursued, the more clearly will it be seen 
to be the undoubted policy of both England and the United States to repeal 
the fixed price of gold, and make it a tender only at the market price. This 
is a favorable time to make the change here, because the market price will 
not only be maintained during the present adverse exchange with England, 
but if that exchange continues as now, it would inevitably go above our 
mint price: that is, while, by the natural course of events, gold would be 
depreciated from its over-supply, by the state of our indebtedness to Eng- 
land, and the great demand for funds to remit, it might rapidly go to a 
high premium. It is impossible to say what would have been the price of 
exchange on England during the past year, if the parties remitting had not 
been permitted to take gold and silver from the banks at par. Now, if the 
banks were permitted to pay in gold at the market price, or the same price 
at which, from time to time, it might be declared to be receivable at the 
sub-treasuries of the United States, we should be receiving a premium on 
gold at the moment when it might be intrinsically under par." 


§ 1. The actual nse made of coins measvres their importance and potoer — 
Modes of payment of greater efficiencij adopted — Each to he judged upon 
its own merits — Usages of trade assign to coins tJieir office — Not a model 
currency — They carry no higlier interest than a credit in bank — Tim 
British act of 1844, requiring the issues of the bank to fluctuate as gold — 
Sir Robert Peel — Lord Overtom — Col. Torrens — The question one of 
commerce and payment — Return to hard currency impossible. 

In some respects, tlie extravagant estimate placed upon gold 
and silver, in their functions of money, is not too great. As 
such, they are an universal equivalent. Every article which is 
for sale can bo purchased for gold or silver. This is not true, to 
the same extent, of any other commodity. They have maintained 
their place, as the best materials for money and coinage, for 
thousands of years. It is not wonderful, therefore, that they 
should be prized as the chief items and emblems of wealth. 
Their actual employment, to a large extent, in those small deal- 
ings which are immediately connected with daily living, and 
in all the details of food, lodging and raiment, brings their 
importance and utility home to all who purchase such necessa- 
ries at pleasure, as well as to those who, from poverty, do not enjoy 
that advantage. This, together with the fact that so many 
make no distinction between money and money of account, 
creates the impression that, somehow or other, all purchases and 
payments are indebted for their validity to gold or silver money; 
that, when not employed in any transaction, they are in some 
way involved and referred to, is the firm belief of multitudes. 
This impression can only be wiped off' by a full compreliension 
of the office and functions of a money of account. When this is 
attained, and Avhen lie wlio examines this subject can fully discri- 
minate between the use of money of account, by which prices arc 



expressed, and the use of coins, by "which payments ave made, 
it is not difficult to estimate the real importance of the precious 
metals employed as a medium of exchange. We are disposed to 
think that no safer or closer approximation can be made to their 
importance or value as a currency, than that which is denoted 
by the actual extent to which they arc employed. We do not 
mean to say that the manner of their use is best, nor whether 
they may not with advantage be more or less employed ; but we 
mean that the real extent to which they are employed is the 
truest criterion of their importance and power as a currency. 
We have se-en that more coins are manufactured than are re- 
quired, and that the chief mints of the world have long been 
mainly employed in working up the products of other mints. Of 
course no exact estimate of the amount of coins actually re- 
quired for the business of a country can be made ; but the 
amount must be exceeiled, when large quantities of coin are 
exported, to be recoined at foreign mints. 

We have said that the power and importance of gold and sil- 
ver, as a medium of exchange, are best measured by their actual 
employment and agency. We may go further, and say that, in 
all those transactions of trade, foreign and domestic, in which 
the precious metals are not employed, they not only exercise no 
agency whatever, but they are not needed. When we are con- 
sidering the uses to which the precious metals are put as money, 
or a medium of exchange, whether coined or uncoined, we should 
confine our views to their proper range of use. And when we are 
considering that vastly larger proportion of the payments of 
trade which are made without any agency, direct or indirect, of 
gold or silver, we should study the very processes by which 
these payments are effected. They are as valid, complete and 
legitimate as are the transactions carried on by means of coins; 
and, therefore, of so much the greater interest, because that 
portion of commerce which is effected without the agency of the 
precious metals, saves the great expense of employing them — 
an economy Avhich cannot be rated at less than ten times the 
whole quantity of the precious metals now in use. So far as the 
exports of a country are made by bills of exchange, and other 


means, to pay for its imports, so far the payments are as well 
and eifectiially made as the small balance either way, which is 
discharged in gold and silver. 

Whatever be the utility and importance of the precious metals 
as a medium of exchange or an equivalent, their utter insuffi- 
ciency to accomplish the payments of the present day shows 
that, though they may never be wholly dispensed with iu com- 
merce, their efficacy as means of payment has been so far trans- 
cended by other modes, devices and contrivances, that nothino- 
can be more fallacious than to regard them as a model. 
Wagons, carts and wheelbarrows were once the best vehicles of 
transportation ; and in some places, and for certain uses, they 
are yet the best ; but it would be signally absurd to insist that 
locomotives should be carefully regulated in their construction, 
speed and use on the model of wagons and carts of the olden 
time, or of those which are still in use. 

Upon this subject our attention should not, then, be mainly 
directed to silver and gold, merely because they were the ear- 
liest medium of exchange, or the one most highly prized as such, 
but rather to the object to be effected. We are not bound to 
employ so expensive a medium, if we can avoid it. In all 
stages of commerce, we find there has been a constant effort to 
dispense entirely with the use of the precious metals. The great 
object of commerce being not merely to obtain and circulate 
gold and silver, but to effect an exchange of commodities and 
labor, the interchange which is effected without any medium of 
intrinsic value must certainly be much more economical than 
that in which the precious metals must be employed. When the 
payments of foreign commerce between two nations arc effected 
through mutual bills of exchange, by which the commodities ex- 
changed pay for each other, the dealings between them arc as 
effectual as if carried on at every step by payments in gold or 
silver. When neighboring tradesmen or merchants deal with 
each other, it matters hot to what amount, debiting in their 
respective books of account the price of what they sell to each 
other, their payments are made by simply comparing and bal- 
ancing accounts. These modes of payment are undoubtedly as 


effectual, and far more economical and rapid, than if the parties 
had paid the coin in every transaction. Dealings like these do 
not require to be governed by rules or considerations which per- 
tain to the circulation of coins. The precious metals, in the 
shape of coins, are only one of many means of effecting an in- 
terchange of commodities ; and being far from the most efficient, 
the mode of their operation should not be the rule when they 
are not employed. As well might the transportation of goods 
by camels and carts be made the rule for railroads. 

The prices of commerce are all expressed in money of account ; 
bills of sale are all rendered in money of account ; bills of ex- 
change, and promissory notes, are for sums expressed in money 
of account ; books are so kept ; and all payments, however 
made, are but the discharge of debts ascertained and expressed 
in money of account. In all this coins have nothing to do, 
unless they are used in final payment, which is very rarely the 
case. Gold and silver being, then, but one of many agencies 
of commerce, however necessary and desirable in their place, 
however appropriate that the many questions relating to their 
use be wisely and skilfully determined, there is no propriety in 
their being regarded as models or guides to determine questions 
arising in other modes of payment. 

As nearly all the large dealings of commerce are now carried 
on, and the payments made, without the use of any medium of 
exchange, or any one without intrinsic value, there is neither 
reason nor logic in appealing to the doctrine of gold and silver 
money for instruction or guidance in these large operations. 
The necessities of commerce have revealed cheaper and more 
rapid modes of payments. Men have availed themselves of various 
agencies, explained hereafter, to set off the debts of the people 
in one country against the debts of the people in the other. If 
individuals in England owe to individuals in the United States 
the sum of five millions, and if individuals in the latter owe to 
individuals in the former five millions, the whole can be settled 
by bills of exchange, without the slightest obligations to or any 
use of the precious metals. The merchandise of one country is, 
by this process, made to pay for the merchandise of the other. 


No medium of intrinsic value need intervene. The parties deal- 
ing simply ascertain, and keep some evidence of their respective 
dues, until the account between them can be balanced or set off 
against each other. In such transactions, there being no need 
of gold or silver, it would be hard to divine why the shadow 
should intervene where the substance is not required. We can- 
not see why, if gold and silver cannot be made to eflfect the pay- 
ments of commerce, they should be the basis of rules and regu- 
lations for payments in which they have no part. 

The progress of business, the usages of commerce, and the 
requirements of industry, have in fact assigned to the precious 
metals their true place and office. If we examine the position 
thus assigned, we find them employed as the small change of 
the retail trade, as the means of paying balances, and as bank- 
ing securities. The current payments of business, out of the 
merest retail trade, are very seldom made in coins or bullion. 
It is a fact well known in this country, that where notes are 
issued in sums small enough for the purposes of the retail trade, 
they invariably supersede the use of coins, even in the retail 
business. It requires very stringent laws in Pennsylvania to 
keep out of her circulation the one dollar notes of the surround- 
ing States ; and even with the aid of these they are but par- 
tially kept away : such is the indiifcrence to coins, in a country 
where each individual has a legal riglit to demand payment of 
every debt due to him in gold or silver. The precious metals, 
therefore, find no actual preference even in the small payments 
of the retail trade. Experience has shown the same results, 
even where the paper thus preferred was inconvertible. 

In Great Britain, and in the United States, long periods of 
time have elapsed, in which payments were almost exclusively 
made in inconvertible paper currency, or in other devices of 
the credit system. This was tlie case in Great Britain in the 
memorable period between 1797 and 1822 ; a period of conti- 
nental war, but of great commercial and industrial prosperity; 
a period in which the public revenue and productive industry 
reached a higher point than had ever been attained before. But 
even since the resumption of specie payments in Great Britain, 


and in tlic United States, the payments of commerce are, to a 
very small extent, made in coins or bullion, though every credi- 
tor can legally insist upon such payment. Commerce, then, can 
be carried on Avithout resort to the precious metals, in case of 
national emergency ; their agency is comparatively small and 
special, when such emergencies do not exist. In the city and 
State of New York, nearly the entire domestic circulation down 
to a dollar is of paper ; and so it is throughout the New Eng- 
land States. A very large proportion of their current pay- 
ments is made in notes under five dollai's ; and the amount of 
coins required is only in change for sums under one dollar. 
They prefer this system, and adhere to it. The Scots are so 
extremely tenacious of their one pound notes, that they have 
strenuously resisted repeated efforts of the British Parliament 
to prohibit the issue of such notes in Scotland.^ And highly as 
the English authorities nov*^ pride themselves upon the fact of 
permitting the issue of no bank-notes under five pounds, it is a 
fact well known, that upon one occasion the Bank of England 
was saved from suspension, on the occasion of a run upon its 
specie, by olTering to the public one pound notes, a box of Avhich 
happily remained in the bank, the remnant of former issues. We 
adduce such facts as these, and many such might be indicated, 
to show the comparative importance of the precious metals as a 
means of payment. It is impossible to estimate the exact 
agency, or comparative efficiency, of any of the various modes 
of effecting payments. We can only determine their respective 
usefulness by observing their operation side by side. We can- 
not but see that, whatever advantages the precious metals have 
in their intrinsic value, in their superior fitness for coinage, in 
their being the only legal medium of discharging a debt, in 
every creditor's having the right to demand them in payment, 
yet, after all, they are employed to but a very limited extent, 
and are always displaced by paper whenever it is offered, both 
for large and in small transactions. 

' One of these eiforts called forth a witty and energetic protestation by 
WaltRi- Scott, in several long letters under the signature of Malachi Malor 


We repeat, then, that there is neither propriety, nor neces- 
sity, nor logic, in looking to the doctrine of the precious metals 
and coinage for rules or regulations in regard to processes of 
payment, and devices of the credit system, which are wholly in- 
dependent of the precious metals in their theory, and in their 
operation. Because gold and silver, one or both, are the safest 
and best medium for payment of balances, for bank securities, 
and for legal tender in cases where parties cannot agree, it does 
not follow that the doctrine and usages which govern payments 
in the precious metals should be the rule in payments by the 
credit system. 

We may adduce, as further proof that the precious metals 
occupy no specially important rank in the great business of pay- 
ing debts, that when the demand for means to pay debts is so 
urgent that the rate of interest rises from the half of one to one, 
two or three per cent, per month, the demand in such cases is 
never for specie or coins, but merely for such funds as are 
usually employed in payments. Coins or bullion do not fluc- 
tuate in value, with the rate of interest ; when interest rises 
one, two or three hundred per cent., coins may not increase in 
value one per cent. A great demand for the means of paying 
debts does not imply any increased demand for coins or bullion. 
AVhen the pressure for money is greatest, and interest at the 
highest rate, gold or silver coins command no higher interest 
than a credit in bank. A credit on the books of the Bank of 
Venice, which was not convertible into specie, but only trans- 
ferable in payment of debts, always stood at a high premium 
over current coins. It is evident, then, that the partiality 
entertained for the precious metals is not strong enough to in- 
crease the price or the demand, in times of pressure or scarcity, 
any more than when money is plenty, and interest low. What 
is needed, at such times, is not gold nor silver, for upon such 
occasions they are specially inconvenient, but simply funds 
which will pay debts, whether bank-notes or bank credits. The 
most urgent necessity to which the man of business is subject, 
is that of paying his debts with perfect punctuality ; his credit 
depends upon this. Yet, in his most pressing wants for money, 


it never occurs to him that coins are any more desirable than 
anything else that will acquit him of his obligations. 

It would seem idle to maintain this point further, by argu- 
ment or illustration, if men of high position and acute minds 
had not even recently yielded to the fallacy, that substitutes for 
money should be regulated so as to operate like a currency 
wholly of gold or silver. Upon this idea, chiefly, Avas Sir 
Robert Peel's bill of 1844, to modify the Bank of England, 
founded. The bank was allowed, by this bill, to issue notes, to 
a certain specified amount, on the security of the debt due by 
the government to the bank. Beyond that sum no further 
issues were to be made but upon gold actually in the bank ; the 
avowed object being to make the notes fluctuate precisely as a 
gold currency would fluctuate. The error involved in this mea- 
sure, and the deceptive reasoning upon which it was based, was 
strongly urged at the time : experience has equally condemned 
it since ; and it only stands a monument of the difficulty a gov- 
ernment finds in retracing a false step. 

It Avill be some gain if the public learn from experiment, that 
the only connexion Avhich the gold in the Bank of England has 
with its current operations is as a security to the holder of its 
notes, and to its depositors. The immense amount of payments 
effected by the customers of the bank, through its agency, are 
in no way dependent on the gold in its vaults for their efficacy. 
The government may limit the business of the bank by refer- 
ence to the quantity of gold on hand, if the public interest 
demands it ; but it should not propound, as a reason for such 
limitation, that the movements in the deposits and notes of a 
bank should correspond with the fluctuations of a currency 
wholly metallic. This is running the cart against the locomo- 
tive, the " ship of the desert" against the steamer of the ocean. 
A greater amount of payments are made, in the Bank of Eng- 
land, for the benefit of its customers in one week, without 
touching a penny of its coin, than could be eff"ected by that 
coin, in its regular movements, in a whole year. The bank, what- 
ever its demerits, or whatever reforms it may need, as an instru- 
ment for accomplishing the payments of commerce, is just as 


much more effective than the coin in its vaults, as a locomotive 
with its freight train is superior to a man with a wheelbarrow. 
When it becomes expedient for a steamer at sea to tack and 
take the same zig-zag course which a sailing vessel is compelled 
to take, then it may be wise to regulate the movements of the 
credit system by those of coins and bullion. 

The influence of a great and honest statesman was sufficient 
to carry, against much opposition, a measure destined to be 
called the greatest mistake of his useful life. We shall not 
enter into the subject at large here : the whole substance of the 
positions taken in this volume are opposed to the principles pro- 
pounded as grounds for the act of 1844.^ 

The advocate of the act of 1844 regards the whole subject of 
money and credit from a wrong point of view. The real subject 
is commerce, and the real question is, how the payments of 

' We cannot easily persuade ourselves that this act is really a product 
of Sir Robeit Peel's mind. We rather incline to give the credit to Col. 
Torrens, who has defended it with ability, and evidently regarded it with 
the kind of favor which a man bestows upon his own progeny. Col. Tor- 
rens speaks thus, in a pamphlet published in 1848: — "These provisions 
of the act of 1844 were framed in conformity with the following princi- 
ples," &c. Again: "Such being the principles upon which the act was 
founded, it became incumbent on those who were concerned in framing it," 
&c. Further: " Upon these grounds the framers of the act assumed," &c. 
It will be observed he does not ascribe the act, or its principles, to Sir 
Robert Peel ; he fully approved the measure, and assumed to know the 
principles and views of the framers, without any intimation tliat they were 
those of the distinguished statesman to whom they are usually ascribed. 
From such modes of expression, when taken in connexion with the fact, 
that the act is almost universally ascribed to Peel, we can only draw the 
inference that Col. Torrens was either the framer, or one of the framers of 
that act. It may bo, after all, that Lord Overstone is entitled to bo re- 
garded as the chief adviser of Sir Robert Peel, in reference to this nioa- 
sure. We confess that we should look upon this as extremely improbable- 
if there were no evidence to that effect. Surely, his great practical know- 
ledge, and well-known discrimination, should have protected him from so 
serious an error, however congenial it may be to a mind like that of Col. 
Torrens. Whoever may be the real author of this false legislation, we 
trust he may live to see that even great names cannot perpetuate great 


commerce can be most effectively and economically accom- 
plislied ? This question, without reference to its connexion with 
the Bank of England, had long and constantly been the subject 
of study upon the part of men of business and of finance. They 
had, long before the bank was in existence, determined that the 
precious metals were to be wholly dispensed with in payments, 
when the payments could be as well effected without them. In 
this they had succeeded to such an extent, even before the days 
of banks of circulation, that by far the largest share of the pay- 
ments were made without any aid from coins. ^ The establish- 
ment of the Bank of England did not change the nature of the 
question, which was still how to economize the use of coins in 
the payments of trade. This bank, whatever the faults of its 
constitution, became one of the most efficient agents of com- 
merce ever established ; only second, perhaps, to the Bank of 
Venice : and to the praise of English commercial integrity be it 
said, that no banking institution was ever, for such a length of 
time, more honestly and wisely managed. Its proper government 
has involved more real difficulties than any other bank ever 
encountered, and it has triumphed over all. Its chief object 
and business has been to effect payments without the use of 
coins. It has enabled its customers to make their payments, to 
the amount of many millions sterling weekly, without the use 
of either coins or bullion. As a security for these customers, 
and a convenience, the bank agreed to pay all its own debts 
upon demand in coin ; but this it did upon the presumption that 
the wants for coin would not exceed its ability to pay, as in 
ordinary times they do not. Unless some extraordinary emer- 
gency occurred to create a special demand for specie, the busi- 
ness of the bank was not conducted with any reference to 
coins; and proceeded as well, and in the same way, with five 
millions in coins in the bank, as with fifteen millions. The 
current payments at the bank, among men of business, are 
not in the slightest degree facilitated by the coins in its 
vaults. When, from any unusual circumstance, such a demand 

' See Chapter on " Fairs," infra. 


upon the bank for coins occurs as makes it necessary to cur- 
tail its accommodations, and thus diminish the amount of its 
debts payable on demand ; this, though it may prove a very great 
injury and inconvenience to the customers of the bank, cannot 
alter the nature of their business, nor lessen their need of the 
usual facilities : the curtailment of which, by the bank, is a mea- 
sure of defence as between the bank and the public, by which 
the customers of the bank of course suffer. They still demand 
the same accommodation from the bank — their business still 
requires it : the flow of coin from the bank is of no conse- 
quence to them, if they can keep up the amount of their depo- 
sits for current pajanents. An extraordinary demand for coins 
would be of no more importance to them than an unusual 
deijiand for coffee or cotton, unless it had the effect of diminish- 
ing their accommodations at bank. They Avould not admit, 
for a moment, the doctrine that their economical and effi- 
cient mode of adjusting mutual demands — the paying their 
debts by the use of their credits — should depend upon short 
crops at home, or any special demand for specie abroad, either 
for rebellion in China, wars in the East Indies, or commercial 
revulsions anywhere. 

They would regard " the natural law of equilibrium, by which 
the precious metals are distributed throughout the countries of 
the world," ^ as an intangible phantom. For men of commerce 
know that the amount of coined money employed by a people 
depends mainly upon their mutual confidence, and the extent to 
Avhich they employ the most approved devices of the credit sys- 
tem. A high state of commercial integrity will dispense with a 
large proportion of the coin which might be required without it. 
The merchants of a country in Avhich commercial honor is of a 
hi-zh frrade, and in which mutual credit and confidence corre- 
spend, would be very slow to admit that their modes of pay- 
ment — that of applying credits to the payment of debts — 
should fluctuate in amount, just as the circulation of coins may 
happen to vary. They would regard as purely visionary the 

' Col. Torrcns. 


idea of any ebb and flow of gold, regular or irregular, by which 
their business was to be limited or regulated. It is the 
accidental circumstance, that the bank pays its debts in gold, 
which makes it necessary for them to watch the demand for 
gold, and guard against the contractions of the bank. They do 
not regulate their business by the movement of gold, but pro- 
tect themselves against the effects of some of its movements, as 
they would against any other unfavorable incident. 

If the question were merely as to the mode of securing the 
convertibility of bank-notes, we should, at this stage of our in- 
quiry, have no remarks to make upon the act of 1844 ; but 
when the avowed object is to produce a fluctuation in the quan- 
tity or amount of bank-notes, similar to what would take place 
if the coin or bullion were employed in place of the notes, we 
see that the whole proceeding is founded on a misconcep- 
tion of the separate functions of money, and of the credit sys- 
tem. We have already stated that the chief use of money is in 
the small operations of the retail trade, in the final distribution 
of the products of industry, and, with the further aid of bullion, 
in the payment of balances in the foreign trade of nations, or 
balances between different districts of the same country. More 
than ninety-five per cent, of the larger operations, or debts of 
commerce, are settled and adjusted without resort to the pre- 
cious metals, which are only used where the modes of the 
credit system do not apply. If France exports to the amount 
of a hundred millions to England, and the latter to the amount 
of ninety-five millions to Fi-ance, the indebtedness between them, 
to the amount of ninety-five millions on each part, is adjusted 
by bills of exchange, and other devices of credit. The precious 
metals are called in to pay the balance of five millions. There 
is, indeed, no resemblance between this use of the precious 
metals and the processes of credit by which this vast indebted- 
ness of one hundred and ninety-five millions would be fully paid 
and settled. On the contrary, the five millions' worth of gold 
and silver employed to cover this remaining debt would be merely 
another commodity exported to bring the transactions between 
the nations to a balance. 


Every medium of exchange, every commercial equivalent, and 
every mode of payment, is strictly subordinate to the great pur- 
poses of commerce. Each must be regarded separately, in 
reference to its mode of subserving the ends of commerce, its 
special adaptation, and the means of increasing its efficiency. 
There is no more reason in mingling book-keeping and coinage, 
than in mixing together ships and warehouses : all these things 
are mere agencies of commerce. Each has a special purpose to 
subserve, and its use should be studied with reference to that 
purpose. Now, the mode in which coins and bullion are em- 
ployed, and the extent to which they are used in the current 
payments of commerce, foreign and domestic, is easily traced 
and known : in considering their uses, powers and efficiency, we 
should not lose sight of the facts Avhich thus belong to their use 
and history. As but a small proportion of the great payments 
of trade are made in the precious metals, we must constantly 
distinguish between what is done with, and what is done without 
them, and regard these distinct methods with equal attention. 
These modes are so totally different, that a knowledge of the 
use of coins or bullion is very far from making an adept in the 
processes of the credit system. The latter are not derived from 
the former, and must be examined and studied upon different 
facts, and circumstances as different. AVhcn coins or bullion 
are employed, they are used as an equivalent for the merchan- 
dise or articles for Avhich they are given ; that is, one article of 
value is given for another, and the transaction is ended. But 
the payments of the credit system are effected by devices com- 
plicated with various securities, such as bills of exchange, pro- 
missory notes, books of account, bank-checks, and many other 
agencies. By this credit system, the goods sold pay for the 
goods purchased — all that intervenes being the paper securi- 
ties which all the buyers and sellers hold as evidence of their 
claims and transactions. The only link between the money sys- 
tem and the credit system is the money of account, which is a 
universal accompaniment of the money system, but indispens- 
able to the use of the securities and other devices of the credit 


The credit system is an incalculable saving in tlie commerce 
of the world, because it dispenses with the necessity of employ- 
ing immense sums in the precious metals. But it does not 
affect to dispense witli them altogether ; it leaves all balances 
to be paid in money. It makes large demands upon the pre- 
cious metals, to be held as securities for contingent or future 
payments. The credit system is one thing — the money system 
is another. Both are agencies of commerce ; they operate dif- 
ferently, and must be studied according to their respective 
modes of operation. 

The narrow channel of usefulness in which coins can be era- 
ployed, now well understood, may be enlarged by discoveries 
and efforts yet to be made ; interest will ever be a sufficient 
incentive to such progress. As matters now stand, it is more 
in the natural order of things to consider how to dispense with 
the precious metals advantageously, in effecting the operations 
of commerce, than how to employ them. Let us suppose the 
subject presented in these two points of view to two large con- 
sumers of each other's products. If the question between them 
be how they can effect an exchange of their products with the 
most economy and advantage, they may devise various modes of 
doing this, without using money, which is the most expensive of 
all agents. They may, for instance, simply charge each other 
with the amount of the respective purchases as they occur. The 
accounts thus kept may be compared and balanced once a month, 
or once a year, and the amount resulting either way be carried 
to a new account, or be paid in gold or silver. If the question, 
however considered between these parties, be strictly how they 
can best employ money or coins in their dealings, it will be 
merely wdiether the cash shall be paid upon each transaction, 
or only at agreed intervals. They will not arrive at the economy 
of doing their business without gold or silver, because they will 
not be looking for it. 

The necessity of properly regulating and restraining the issue 
of bank paper cannot be controverted ; the security required, 
whether gold, or silver, or something else, should be of a nature 
to inspire and secure confidence. If gold or silver be the secu- 


rity required, so be it. But it docs not follow that the paper 
must fluctuate in amount as the precious metals Avould do, if 
they were the sole medium of payment. Gold and silver being 
themselves commodities of trade, for which there are various 
specific uses and demands totally apart from their uses as a me- 
dium of commerce, the rule which would withhold bank issues, 
because the precious metals were in demand, must work directly 
against the interests of commerce. It would be like the conduct 
of a commander in the field, who should dismiss his auxiliaries 
in the same proportion he was losing his own regular forces. It 
may be necessary for the banks at times, under the present sys- 
tems of payment, to reduce the issues of their paper when specie 
is in demand ; but this is a measure of safety for the banks, and 
it is only as a measure of safety that it is enforced. The banks 
can give no reason why they should reduce their circulation, 
when the precious metals are being exported, but that their 
safety requires it. If the banks were able to protect their circu- 
lation under such circumstances, it would accord with their own 
and the public interests to enlarge their circulation when money 
is thus withdrawn. "What, in peculiar circumstances, may be 
prudent or expedient, should not be converted into a law or rule 
of public economy, or a principle of banking. 

The bank of England may contract its issues when gold is ex- 
ported, or it may not, according to the circumstances of the 
case. The discretion of its directors, their knowledge of finan- 
cial operations and the course of trade, must govern their deci- 
sion. The bank might be compelled, from motives of caution 
and safety, to restrict its issues, in the face of a demand for 
gold from some distant part of the world ; but a demand for 
gold on the other side of the globe is in itself no very good rea- 
son why British merchants and manufacturers should be denied 
their usual bank facilities. The bank, in the circumstances, 
may not be able to aftbrd them ; but that arises from the consti- 
tution of the bank, and not from any condition of British trade 
which would make the withholding of the usual facilities proper. 
The act of 1844 converts the caution of the Bank of England 
into a law of trade. If the peoi)lc of France at any time want 


more gold in tlieir domestic trade, it forms no sound reason why 
the people of Great Britain should, on that account, make less 
use of credit in their domestic trade. 

It cannot be said there is even any such analogy or con- 
nexion between the mode of payment by the use of the precious 
metals and the various modes and devices of payment employed 
in the credit system, that one should be a law or rule for the 
other. When gold is rapidly leaving England, should men of 
business then cease proportionably to employ their books of 
account — should bills of exchange, as a means of adjustment, 
be less resorted to ? The contrary of this is, in fact, the sound 
rule, and the one to which the intelligence of the people, and 
the necessity of the case, alike lead. When the quantity of coin 
diminishes, the resort to other devices of payment increases. 
During the time of the suspension in England, the payments of 
trade were not restricted, nor diminished, in proportion to the 
quantity of specie remaining in the country. The people trans- 
acted their business, and made their payments, not by reference 
to the diminishing stock of the precious metals, but according to 
the laws of mutual trade. Instead of allowing their business to 
siijk with their stock of gold, they gave it a wonderful develop- 
ment, both in volume and value. 

The history of commerce shows, as we have had frequent 
occasion to remark, that various devices of credit and payment 
are so many plans to avoid the necessity of employing the pre- 
cious metals. These devices have been numerous and efficient, 
in proportion to the progress of trade, and measure that pro- 
gress with considerable accuracy. They have been, in fact, 
devices of necessity : the precious metals having been made to 
perform all that was possible, resort was had to other means of 
payment to carry on that trade, which would not otherwise have 
had any existence. Considering the partiality which has always 
existed for gold and silver, they could never have been so 
largely dispensed with, without very substantial reasons. The 
plan of returning wholly to the use of gold and silver, at the 
present day, for all payments, is therefore plainly impossible ou 
other conditions than reducing commerce to the extent to which 


it is now carried on by means of coins and bullion. It must be 
noted, that these are not idle ; they are now used constantly, to 
the extent of their capability. The quantity shut up in banks — 
a small amount, in proportion to the whole — is all that could be 
added to the mass in circulation. It will be seen, by a little 
consideration of what is now done in trade by metallic money, 
and what by credit and substitutes for money, that a return to 
the metallic medium would necessarily involve a reduction of 
commerce to less than a thousandth part of its present import- 
ance. The various modes of effecting payments without hard 
money are the result of more than three centuries of effort and 
experience. It betrays, then, small acquaintance with the his- 
tory of commerce, to propose an exclusive use of the precious 
metals in all transactions of trade. 

We have already adverted to some of the evils and vexations 
of a hard-money currency ; we might greatly enlarge upon that 
topic. It is true that many of the mischiefs which inflicted so 
much injury, caused so much distress, and drew forth such loud 
complaints, were the result of abuses, as in fact is the case now 
with the abuses of credit. But there are objections to an exclu- 
sive currency of the precious metals, apart from any abuse suffi- 
cient to warrant all the efforts of the last three or four centuries 
to introduce another system of payment. 

One of these is the expense of providing a medium of so great 
intrinsic value. As the cost of the medium to the transactions 
effected in a year, so is the annual charge. We have now, in 
the United States, about $250,000,000 in specie, which wo 
retain at a cost of $15,000,000 yearly, besides the charge for 
coinage. IIow much this stock of the precious metals would 
have to be increased, to perform the business of this country, 
would be estimated very differently. It would require, probably, 
all the gold and silver now in use as money in the world, to 
make the current payments of Great Britain and the United 
States. But the cost of handling, transporting, counting and 
guarding such immense quantities of treasure is beyond all cal- 
culation. The cost of maintaining such a stock of hard money 
would be a tax whicli no modern people would endure for a sin- 


gle year. No effort that the people of the United States could 
be brought to make would double our present stock. It would 
be the purchase of a dead or unproductive stock of 250,000,000. 
Who would be the holders of this unproductive article ? If the 
people had desired any great increase, they would have it now; 
they are exporting gold by the million weekly. The increased 
quantity does not enter the channels of circulation, because the 
people do not desire it. They can, at pleasure, change notes for 
coins, but they do not ; they can exact payment of every debt 
due to them in coins, but they do not. Whoever supposes this 
indisposition to hold coin in place of notes or credit, can be over- 
come by legislation or essay Avriting, is greatly in error. The 
resort to credit, as a substitute for money, has steadily increased 
for more than a century. This progress is now more rapid than 
ever. It is not measured merely by the number of banks and 
bankers, but by the manner in which business is transacted with 
them. There is every indication that this progress is yet to be 
greater than heretofore, and that the time will never again come 
when a return to a currency of the precious metals will be among 
the possible things. The depreciation of these metals has been 
so great since the discovery of America, that one of the difficul- 
ties has increased many fold. It is little thought of now, but 
the time was when travellers carried coin for their expenses, 
and families kept it in their houses for the same purpose, that 
the teiTor endured from fears of robbery was fully justified by 
the danger in which every family lived, and every traveller 
moved. Piracy and robbery, with accompanying murders, for 
the sake of hard money, were prevalent throughout Europe, and 
upon all seas. 

Now that the custody of large sums of the precious metals is 
almost exclusively committed to banks and bankers, the danger 
and the risk of keeping and transporting large sums in the 
hands of individuals is forgotten, or not appreciated. If such 
custody were resumed by merchants and capitalists, robbers and 
pirates would soon resume their vocation. Gold and silver have 
no ear-marks ; there is no valuable possession so easily secreted, 
and so difficult to follow. 


No evil, however, of the days of hard money was more 
severely felt, none was more fiercely denounced, than the ter- 
rible grip of usurers. The power of the money-kings of those 
times was far beyond any modern experience in that line. 
Year after year, a storm of indignation burst forth upon the 
heads of money-lenders ; the clergy preached, and wrote, and 
denounced the extortioners ; and nothing kept the Jew from the 
wrath of the laity, but the strong arm of kings and magistrates, 
who plundered those Avho plundered the people ; thus transfer- 
ring the odium to the Jew, whilst the prey came to their pockets. 



2 1. Bank of Amsterdam. 

Banks of deposit, of which that of Amsterdam was the first, 
seem to occupy an intermediate position between payment in 
coins or bullion, and payment by the methods of the credit sys- 
tem. The difficulties encountered in the use of coins became so 
great, as to be deemed very sei'ious grievances. There was con- 
tinual hazard in keeping and transporting coin, on account of 
robbers, pirates, dishonest agents, counterfeiting, and the nu- 
merous ways of abstracting from coins a portion of their value 
by plugging, gutting and sweating, besides the gradual wear, 
which made it impossible for many to protect themselves from 
loss and risk. These, and similar vexations attending the exclu- 
sive use of coins in payment, were so much felt as to produce 
great and wide-spread complaint throughout all Europe, during 
the sixteenth, seventeenth and eighteenth centuries. It was felt 
that some remedy was indis2:)ensable. The history of commerce 
furnishes an account of many of the modes adopted to escape 
these inconveniences. Some of these will be considered here- 
after, as falling under the head of the credit system. The func- 
tions of the deposit banks may be regarded as partaking some- 
what of that character ; but as the payments made by them 
were, in fact, virtually a mere transfer of the ownership of cer- 
tain quantities of the precious metals, they belong rather to the 
class of payments in money. It is true, the parties paying and 
receiving this title to money do not verify the fact of the money 
being in the bank. It was believed to be there ; and, so long 
as that belief continued, the payments could proceed. These 


THE BANK OF A .^I S T E 11 D A M . 175 

payments consisted in transferring a title to so much money as 
purported to be paid ; the money remained untouched, and un- 
seen. This change of ownership by transfer of title might have 
been made available for a very rapid mode of payment ; but the 
■\vholc proceeding was hedged by so many ceremonies, checks 
and securities, that the deposit banks were never as available as 
they should and might have been. The regulation, that the 
same sum could not, unless in very special cases, be transferred 
twice in the same day, seems absurd to merchants and bankers 
of the present time. It doubtless added to the treasures of the 
banks, for it must have required several times as much more 
money to make the required payments in bank, at the rate of 
one payment for each amount in a day, than if payments could 
have been made at pleasure. 

The Bank of Amsterdam was established in January, 1609, 
under the guaranty of the city, and the government of its magis- 
trates. The avowed object was to afford some relief against the 
intolerable nuisance of worn and defaced coins, which flowed 
into a great commercial mart like Amsterdam from all the 
world. The currency made up of these coins had long been at 
a discount of eight to ten per cent. ; and bills of exchange, pay- 
able in this currency, were of course at a like discount. The 
leading measure upon which it was founded, and by virtue of 
which it had a rapid rise and growth, was that all bills of ex- 
change, for sums over 600 florins, were payable only at the 
bank- In a city where so many payuicnts were concentrated, 
this regulation drew daily vast sums to its vaults. Every per- 
son who had bills to pay for himself, or others, was obliged to 
open at once an account in the bank, by depositing the amount 
of coins or bullion needful to meet his payments. These depo- 
sits were scrutinized, tested, valued, and the proceeds carried to 
the credit of the depositor, less .five per cent., besides a charge 
of ten florins for opening the first account. 

As this bank money subsequently bore a premium, the deduc- 
tion of five per cent, was not a loss. The depositor having 
received his credit upon the books of the bank, was prepared to 
transfer the whole, or a part, in payment of bills of exchange. 


or any other debt. This policy rapidly absorbed the vast sum 
required to make the daily payments of the city. And as no 
person was permitted to transfer a deposit or sum on the day it 
was received, a much larger sum was required to effect those 
payments, than if the depositors had been allowed to transfer 
forthwith. The coins and bullion thus deposited were not reclaim- 
able, but, according to the theory of the bank, were locked up 
for ever. Deposits were safe, in the hands of all holders, from 
legal seizure and attachment. The bank received money, also, 
for safe keeping, which was returnable on demand, the deposi- 
tor paying a small charge for the service. Although it paid 
no interest for deposits of any kind, it became thus the depo- 
sitory of many people and institutions, who were afraid to keep 
money in their own possession. 

Though the credit given to those opening accounts was less, 
by five per cent., than the actual deposit, yet this mode of pay- 
ment was deemed so much more eligible than counting, handling, 
testing and scrutinizing coins and bullion, the risk was deemed 
so much less, and the facility so much greater, that the bank 
deposits attained a permanently higher value than the ordinary 

The business of the bank was to receive, to keep and to pay. 
The payments were made by a transfer from the account of the 
payer to that of the receiver : this was done by the party trans- 
ferring, in person, or by his agent specially authorized, and by 
his delivering to the proper officer of the bank a written order, 
or check ; thus : 

Folio 1G09. 

Messrs. Commissioners of the Bank — Please pay to Isaac Dewitt 
the sum of One Thousand Florins, Four Sols and Six Deniers. 

Amsterdam, 25th March, 1709. 
F.IOOO 45. 6d. Samuel Moses. 

On presentation of this paper by the drawer, or his special 
agent, the sum expressed was debited to the drawer, and credited 
to the party to whom the payment was directed to be made. 
The amount thus transferred could not be again transferred 
until the next day, except on a few special occasions. The bank 

THE BANK OF A M S T E R D A M . 177 

was shut fifteen days in January and July of each year, in which 
time the books and accounts were all closed, and opened anew. 
Special scrutiny and comparison was instituted at the opening 
of the new accounts, to see if the bank statements agreed with 
those of the depositors. For the three days following the open- 
ing of the bank, parties were permitted to transfer amounts 
received by them, at their pleasure. The bank was open every 
day, from 7 A. M. to 3 p. m. ; but, after 11 a. m., every transfer 
cost six sols, the charge before that hour being two sols. There 
were, besides, other charges and fines not material to be detailed. 
The number in the margin of the check was the folio of the bank 
book in which the account was kept. The accounts were num- 
bered from one onward, and the folio was made to correspond. 
Each clerk had a specified number of accounts ; and when a 
check was presented to the clerk in charge of the proper folio, 
he could at once turn to the page, write off the amount, and 
make the transfer. 

The operation of this mode of payment would permanently 
absorb an amount of the precious metals equal to the largest 
sum employed at any one period, and of course more than would 
be required for the average payments. As, according to the 
theory of the bank, money once deposited was never again 
restored to circulation, the tendency would have been to swell 
the bank credits to a larger sum than was required for current 
payments, and of course to diminish their value. This was met 
by a policy, on the part of the bank, which overcame that 
difiiculty, and became a source of profit to the bank, and to 

When it was found there were too many bank credits in the 
market, which was shown by their being freely offered for sale, 
brokers were employed by the bank to purchase them at four 
per cent, premium. This practice grew into a regular business: 
brokers were always furnished with bank credits to sell at five 
per cent, premium, and with coin to purchase them at four. 
This kept the price within a range of one per cent., and ahvays 
at a premium, except on very extraordinary occasions. A desira- 
ble equilibrium was thus maintained by a simple contrivance, by 


which the medium set apart for payment of debts was preserved 
from diminution, and from irregularity in value.' 

The bank also received on special deposit any amount of 
bullion or coin offered ; each sum being counted, weighed, and 
placed in sacks, upon which, if gold, the depositor placed his 
seal. A receipt {y-ecipisse) was given him, in this form : — 

Amsterdam, 1 March, 1700. 
Jean Dewitt has deposited in Bank One Thousand Louis d'Or, at the 
rate of Ten Florins and Fourteen Sols each, upon condition that he may 
withdraw them within the space of six months, paying one-quarter per 
cent., or, in default thereof, that they shall be taken by the Bank at the 
rate above-named. 

Flo. 10.700. N. N. 

For the Bank. 

The party making this deposit could renew his right to with- 
draw the identical specie, from six months to six months, pay- 
ing each time the regular charge of half per cent, for bullion, 
and a quarter for all coins, except ducatoons, which were 
charged only one-eighth. The amount of his deposit was imme- 
diately carried to his credit in account, and became transferable 
like other bank credits. The recipissc was also negotiable and 
marketable, varying in value Avith the kind of coin or bullion it 
represented. If not suffered to expire by its limitation of six 
months, the holder could always withdraw the special deposit it 
described by returning the recipisse, and transferring an equiva- 
lent amount of bank credit. While the credits thus obtained 
were passing on the books of the bank in the current payments 
of the day, the recipisse, or right to withdraw the special deposit, 
was passing from hand to hand among the dealers in coins and 

These bank deposits continued to fulfil their functions with 
great regularity and effectiveness. In large transactions, such 
as the payment of bills of exchange, the risk appeared to be 
reduced to the lowest possible degree, and the immense trouble 
with coinage was wholly overcome. 

' " Universal Merchant," by Donald Magens. American ed., p. 178, &c. 
"Stewart's Pol. Econ." vol. ii., p. 292, 4to ed. 


The bank received its first serious check in 1672, sixty-three 
years after its establishment. When the French army had entered 
the Low Countries, and had taken Utrecht and many other places, 
an alarm for the safety of the deposits in the Bank of Amster- 
dam spread over the whole country. The depositors, although 
not strictly entitled to draw their deposits, in what they deemed 
the imminent hazard of the bank, demanded coin for their 
respective credits. The demand was complied with promptly, 
so long as it continued. Those living at a distance from Am- 
sterdam sold their credit even at a discount of five or six per 
cent., which was equivalent to a total loss of ten or twelve per 
cent., as these credits were, at all ordinary times, worth five or 
six per cent, more than par. The alarm was soon over, and 
the bank, not having been violated by the French army, was 
soon again in possession of all its treasures. 

There were times, also, when bank credits ^vent above the 
the usual premium of five per cent. The usual range of these 
fluctuations was four to six per cent., and furnished a class of 
brokers, and dealers in coin and bullion, a very profitable busi- 
ness. They were equally ready to serve those who wished to sell 
or to buy coin or bank credits ; and their operations, as well as 
those of a similar kind in Avhich the bank was interested, while 
they tended to increase the number of the fluctuations, kept the 
price within a narrow range. The dealing in coins, as repre- 
sented by the recipisses of the bank, could be carried on with 
very little capital. The holder of a recipisse for 1000 louis d'or 
might sell the right to receive these coins for 10 florins, and the 
purchaser could only withdraw them by transferring the equiva- 
lent in bank credit. 

So the coins or bullion could be deposited, and be used for 
payment of debts, while the depositor could avail himself of any 
rise in its value. The recipisses became, therefore, so many 
footballs for speculation. It was a mode of dealing in the fluc- 
tuations of coin, without being obliged to hold the coin. The 
right to the coin was the subject of their speculative dealing, 
and not the coin itself. An active comi)etition was easily main- 


tained, in a business requiring no capital. It tended greatly to 
increase the deposits in the bank. 

For almost two centuries the bank enjoyed unimpeached 
credit, performing all its functions with unceasing steadiness, 
and greatly to the benefit and commercial prosperity of Amster- 
dam. The amount of treasure amassed in its vaults has been 
variously estimated at from five to eighty millions sterling. If 
ten millions sterling be taken as a safe estimate, and it be 
assumed that the whole capital was moved only one hundred 
times in a year, its payments in that time would amount to one 
thousand millions sterling, or $4,800,000,000. The transfers 
of this enormous sum were made, during that long period, in un- 
hesitating confidence as to the security of the deposit. The bank 
permitted no scrutiny into its condition, and rendered no account 
to the public ; but merchants never doubted the validity of a 
security which was incessantly used in paying debts. In 1790, 
it was discovered that a large portion of the famous deposit had 
disappeared fifty years before, and that a gradual diminution 
had been taking place during that period, until the actual quan- 
tity remaining w"as small indeed. The amount withdrawn had 
been lent to the East India Company, the Provinces of Holland, 
and the City of Amsterdam, none of which were in a condition 
to make instant restitution.^ The bank failed, because its guar- 
dians had been unfaithful to their trust. Before this breach of 
trust became known, transfers of the abstracted deposits, and 
payments by them, had been made to the value of hundreds of 
millions sterling per annum ; yet these payments were ever after 
unquestioned, as to their validity and efficiency. No evil or dis- 
advantage, no check to commerce, was felt until the abstraction 
was discovered, and the loss fell upon the holders of that 

' It is marvellous that, with the example of the Bank of Venice before 
them, the Bank of Amsterdam %vas not reconstructed upon the principle of 
transferring public debt. 

THE BANK OF II A M B U Tv G . 181 

^ 2. The Bank of Hamburg. 

The Bank of Hamburg was established in 1G19, ten years 
after that of Amsterdam. The extreme inconvenience of a dete- 
riorated coinage from various mints, of differing standards, com- 
pelled the merchants to resort to this mode of relief, availing 
themselves, however, of the co-operation and guarantee of the 
city. One of the effects of the circulation of base coin was to 
produce an unfavorable foreign exchange — a great grievance at 
a free port like Hamburg. The whole evil was so great, as to 
evince that the abuses of coinage may be a serious check to 
trade. The remedy was that previously adopted at Amsterdam, 
to lock up the coins, and circulate the credit granted for them. 
The bank at first received on deposit only the rix dollars of the 
German Empire — a silver coin of approved standard. It was 
supposed that coins thus deposited in the vaults of the bank 
would be safe from the whole army of sweaters, pluggers and 
clippers ; that they could not suffer by wear ; and that they 
would be safe from burglars, robbers and pirates. They disco- 
vered, in process of time, that there was an insidious mode of 
attack, from which the bank did not escape, with all their cau- 
tion. The mint of the Empire issued coins of the same name 
and apparent value, but of a lower standard than those Avhich 
the bank had received. These being put into circulation, soon 
found their way into the batdv. Those merchants who were in 
the secret were able to drive a very successful business by depo- 
siting the new, and withdrawing the old coins. Before the mis- 
take was discovered, a large proportion of the new coins had 
found their way into the bank, to the great dismay of the mana- 
gers. The new coin was of less value than the old, in the pro- 
portion of 516 to 540, or nearly five per cent. less. This pro- 
duced so great a disturbance, that for a time the bank was shut. 
The difficulty was adjusted by assuming an average on the 
above proportion, say 528 ; and upon this the accounts of all 
the depositors were adjusted. This marc banco was not repre- 
sented by any coin ; but from that time, in 1770, it has con- 
tinued to be the unit of the money of account of the bank. At 


the same time, having had this experience of the danger to "be 
apprehended from mints of a foreign power, it was decided that 
the bank should receive ingots of silver or coin only as bullion. 
Every deposit was duly assayed or tested, and the credit on the 
books given accordingly. The standard adopted was one of 
alloy to 47 parts fine. The bank money thus established has 
proved, according to the best authorities, one of the least vari- 
able in Europe. For a long period it has stood at a premium 
above the currency of coins in general circulation, from 20 to 
25 per cent, premium. This argues very strongly that, however 
circulating coins may suit for the purposes of small change in 
the retail trade, they do not suit for the large operations of 
banking and foreign exchange. In all operations of foreign ex- 
change, coins can only be regarded and treated as bullion ; and 
large dealers in coins are compelled to be goA^crned by the prin- 
ciples which govern foreign exchange. 

The bank is under the government of five directors, two coun- 
sellors, two treasurers, and two of the principal magistrates of 
the city : one of each kind goes out annually. The vaults in 
which the treasure is placed have each five different locks, and 
each director holds the key to one of these locks, so that no 
vault can be opened without the whole five directors being pre- 
sent. No employee of the bank, and no broker, is allowed to 
open an account ; for brokers in Hamburg are not regarded as 
merchants, and do not enjoy their privileges ; only merchants 
and citizens of Hamburg are permitted to open accounts. A 
loan office is connected with the bank, which is permitted to lend 
bank money on pledge of gold, silver and jewels, to the amount 
of three-fourths of their value. The officers of the bank have 
the management of the mint, and the coinage of the city. 

The credit of this bank has been rarely shaken. It endured 
a severe trial from the confusion in the coinage above men- 
tioned ; it once over-extended its loans on pledges ; and it was 
wholly absorbed by one of Napoleon's Marshals, Davoust, who 
took all its money for his army. The French government sub- 
sequently made restitution, and the bank resumed its position 
and operations. 


The mode of payment at the Bank of Hamburg is substan- 
tially the same as that -which we have described as having been 
followed at Amsterdam. The same regulation of one transfer 
of the same sum daily, unless on special occasions : the same 
strictness as to the hours of business at the bank — the time of 
transfei'ring being from 7 to 10 o'clock A. m. ; with the permission 
from 10 to 1 P. M., and from 3 to 5 P. M., by paying for the 
privilege. The times for inquiring whether transfers had been 
made were the same, but with a charge if the information was 
required at the two later periods. These charges were usually 
compounded with the clerks for a fixed sum, on payment of 
which information could be had at all hours. These regulations 
are by no means necessary or incident to such banks. There is 
no reason Avhy the deposits in such banks could not be trans- 
ferred by checks as rapidly as the deposits of the Bank of Eng- 
land, or the banks of the United States. And this would be 
giving to the precious metals all the efficiency, in commercial 
payments, of which they are susceptible. 

The Bank of Hamburg is, to this day, a living, useful a,nd 
flourishing establishment. It is a proof that, although institu- 
tions and devices of credit have long since far outstripped, in 
effectiveness, any possible application of the precious metals to 
the business of commercial payments, yet there is no good rea- 
son why every proper method should not be adopted, of making 
coins and bullion available, in the payments of trade, to the 
utmost extent of which they are susceptible. There can be no 
doubt that there is room, in every important commercial city in 
the world, for a bank whose business it should be to receive, 
hold and allow the transfer of deposits of gold and silver bullion 
brought to a common standard, or all fine, and without alloy. 
They could be thus rapidly circulated in payment, and be ready 
for any emergency or demand. 



We have ample accounts of the Bank of Amsterdam. Its central posi- 
tion, in reference to the trade of Europe, gave it great prominence from the 
time of its establishment, and during all its career of nearly two centuries. 
The great prosperity of Holland, as commercial agent for other countries, 
not only increased the business of the bank, but made it more extensively 

Simple as its constitution was, to many it appeared a mystery ; and by 
merchants only were its real benefits and functions understood. Joseph 
Marshall, an intelligent English traveller, who visited Amsterdam, and ex- 
tended his travels over all northern Europe, in 1708, 1769 and 1770, after 
referring to the great fame of this bank, proceeds: — "Here a natural 
question may be stated : What is the use of such a bank ? The excellence 
of a bank of circulation is evident at first sight : by circulating paper, they 
have it in their power to remedy numerous evils, which, in certain situations 
of affairs, attend a languid circulation of coin. If money is too scarce, such 
an institution may make it plentiful: and another great utility (at least it 
has been so esteemed in England) is that of issuing large quantities 
of paper, to supply the home demand for a currency, while the pre- 
cious metals are at liberty to go abroad in whatever method, or on what- 
ever business, the merchants may find advisable, in order to increase their 
commerce and their fortunes at the same time. But, on the contrary, a 
bank of deposit is not attended with any of these conveniences : circulation 
is much impeded by it. The circulation of a million of guilders is attended 
with certain advantages in the United Provinces, by animating industry. 
Suppose the million is locked up in the bank: it may be said they will still 
circulate in the books of the bank : true, they circulate at Amsterdam, but 
nowhere else. Thus the establishment of a bank of deposit has only the 
effect of fixing a vast portion of all the wealth and trade of a country in one 
spot; of which Amsterdam, with the worst harbor, yet possessing the most 
trade of any town in Holland, is a pregnant instance. This local advantage 
of facilitating circulation In one spot, in prejudice of all others, is surely a 
partial decision in its favor. In a political point of view, it may be pro- 
nounced dangerous to the State. A foreign enemy attacking a town, or a 



province, is an evil that can Lc reinodicd; Lut what if an invador lays 
siege to <a bank? What ruin and confusion must ensue? Banks of circu- 
lation are open to some accidents, but not a t-\ventieth part of those of 

" The treasure of the Bank of Amsterdam is an absolute secret to all, but 
those who have the government of it. The value has been computed, or 
rather guessed, at from 20 to 40,000.000 sterling; but naming any particu- 
lar sum must be, at best, but uild work. It is, however, a very astonish- 
ing system of accumulation ; for it is a well-known fact, that money once 
paid and entered in the bank books can never be demanded ; and it is a 
well-known fact, that money is perpetually paid in. Here, therefore, seems 
to be a constant ingress, but no egress; consequently a treasure which 
seems constantly to increase." — Marshall's Traveh ilirovgh Holland, c£t., 
vol. i., page 53. 

This expresses the opinion entertained by many common observers of 
the Bank of Amsterdam, but more especially of Englishmen. It is not, 
then, universally conceded that banks of deposit are safer than those of cir- 
culation. On one point which excited the concern of this traveller, Sir 
James Stewart sheds some light: — "The city of Amsterdam knows, from 
long experience, the rate of demand for bank money ; and it is not to be 
supposed that, upon any sudden emergency which may heighten that de- 
mand for a time, they should be such novices as to increase the credit upon 
their books so far, as to run any risk of overstocking the market with it." . 
. . " During my stay in Holland, I was at great pains, to no purpose, to 
ascertain whether tiie bank ever issued any part of their credit cash upon 
such occasions." , . . " The popular opinion is, that coin is taken out for 
the service of the State : the opinion of many intelligent men is quite con- 
trary." . . . "My opinion is, that every shilling written in the books of 
the bank is actually locked up, in coin, in the bank repositories. That 
although, by the regulations of the bank, no coin can be issued to any per- 
son who demands it in consequence of his credit in bank, yet I have not 
the least doubt but ilial both the credit written in the books of the bank, and 
the cash in their rejiosilories which balances it, may suffer alternate avgmen- 
taiions and diminutions, according to the greater or less demand for bank 
vioney." ..." There are upon the square before the town-house of Am- 
sterdam, between 10 and 11 in the morning, a number of cashiers, Avhose 
business it is to buy and sell bank credit for current coin. They bargain 
with all those who have occasion either to buy or sell ; and, according to 
the demand for specie or bank credit, the agio rises or sinks : and as these 
cashiers must constantly gain, whether they furnish bank credit or current 
coin, since they are never demanders in either operation, it is commonly 
found that there is in their favor about -j^, or perhaps J per cent., accord- 
ing to the revolutions of the demand ; that is to say, one who would first 
buy specie, and then sell it, would lose J, or perhaps but ^\, by his opera- 


tion." . . . " It is a matter of fact, that the bank lends both coin and 
credit to the brokers, cashiers or lombards, who are constantly on the square 
before the town-house." ..." Whenever, therefore, the bank tinds that 
the agio falls too low with respect to coin, and when, in consequence of 
that, the demand for coin increases, then they lend coin out of their reposi- 
tories to the brokers; and when it rises, they lend credit. This coin 
the brokers dispose of to those who have bank money, and who want to 
convert it into coin. They sell the coin for bank credit; the purchaser 
writes off the transfer in favor of the broker, and he again repays the value 
of tlie coin to the bank, by transferring the credit he obtained for the coin 
in favor of the bank. This done, the bank may expunge this credit from 
their book, by which means their deposit of coin is diminished, and also a 
corresponding amount of credit." . . . " If, on the other hand, those who 
have coin find it will not serve their purpose as well as bank credit; they 
come with it to the brokers, who sell them bank credit for it : this coin the 
brokers deliver to the bank, wliich writes off the credit lent to the broker 
in fiivur of him who has paid his coin for it." ..." It is a curious method 
of preserving an exact proportion between the coin on deposit, the credit 
written in their books of transfer, and the demand for bank money." — 
"Inquiry into the Principles of Political Economy," hy Sir James Stewart, 
4to edit., vol. ii., page 298, &c. 

" The value of bank money was formerly very uncertain, as the agio 
often varied from 9 per cent, to par. These variations were partly occa- 
sioned by the actual condition of commerce at the respective periods, but 
chiefly by the schemes of brokers, stock-jobbers, &c. To prevent the possi- 
bility of these great variations, the bank came to a resolution, some years 
since, to sell bank money for currency at 5 per cent., and to buy at 4 per 
cent, agio ; which measure has efiTectually answered the purpose, by keep- 
ing the market price between those extremes." — "Universal Merchant," 
hy D. Magens, 1753 ; Phila. edit., 1797, page 180. 

Those who wish for further information in relation to the Bank of Am- 
sterdam may consult, among many others, the following works: — 

"A General Treatise of Moneys and Exchanges," by A. J. ; 4to: London, 
1708, page 351. "Traite General du Commerce," hy S. Ricard, 5th edit., 
par N. Stnujk: Amsterdam, 4to, 1732, page 14G. The same work enlarged 
to 3 vols. 4to: Paris, 1799 ; vol. i. p. 74. "Guide des Negocians," par M. 
Laurent Lipp: Montpellier, 1793, 2 vols. 4to ; vol. i. p. 03. "Universal Mer- 
chant," hy 1). Magens, edition of J. Aldrich: Philad,, 1797, page 177. 
"Smith's Wealth of Nations," book iv. chap. iii. "M'Pherson's Annals of 
Commerce," 4 vols. 4to: London, 1-805 ; vol. ii. p. 253. 

M'Pherson says: — " The best and most copious account of the Bank of 
Amsterdam ever published in the English language is that which was com- 
municated by iMr. Hope, of Amsterdam, to Dr. Smith, who has inserted it 
in his ' Wealth of Nations.' " 


Any one who will take the trouble to compare, will find that Mr. Hope's 
account is taken from the books above referred to ; and although the state- 
ment is well drawn up, many important particulars not inserted will be 
found, by the diligent inquirer, in the works above quoted, as well as in 
those referred to below : — 

" Cours d' Economic Politique," par Henri StorcTi, 4 vols. 8vo : Paris, 1823 ; 
vol. iv. page 9G "Inquiry into the Principles of Political Economy " by Sir 
James Stcivurt, 2 vols. 4to : London, 17G8 ; vol. ii. p. 292. " Kaufmans- 
Lexicon," von Carl Gunther Ludovici, 5 vols. 8vo: Amsterdam; Leipsic, 
1768. " Banlcen und Munzwesen," von J. G. Busch, 8vo : Hamburg, 
1824, page 1G9. "Dictionnaire Universal de Commerce," par Jaques Suvary 
des Bruslons, 4 vols, folio : Geneva, 1742; Avt. " Banque," \o\. \. j). 278. 
"Kelly's Cambist," Art. "Amsterdam." " Beschreibung der Banquen," von 
P. J. Marperyer, 4to : Leipsic, 1717, page 119. "PosiletJnvaite's Dictionary 
of Commerce," 2 vols, fulio. Sir William Temple's Works, folio, vol. i. 
page 32. 


Very full details respecting the Bank of Hamburg may be found in the 
books referred to under the proper heads ; but more especially in tliat of 
J. G. Busch, translated into French, with the title: "La Banqiie de Ham' 
boiirg rendue facile." 


^ 1. Distinction between credit and the credit system — The latter defined — 
Involves a separation of the business of payments from the business of dis- 
tributing commodities, and makes trade virtually a barter — The great divi- 
sion of labor makes this necessary — Relations of debtor and creditor 
mutual, and exist mainly among the same classes — The fund out of which 
debts are paid arises from the credits which are the counterpart of the 
debts — Circulation of credits as a currency — Convertibility carried too 
far — Evils of blending credits and money — Diversion of credits from 
their proper functions — Order of considering fJiis subject. 

Credit, in no one of its meanings, is the same tiling as the 
credit system ; the latter implies the former, but the former 
does not include the latter. Credit refers chiefly to the confi- 
dence which dealers repose in each other, and to the consequent 
postponement of payment upon transactions of sale. When one 
sells and delivers goods to another, agreeing to receive payment 
at a future day, that is giving credit upon one side, and taking 
it upon the other ; but this transaction may not fall within the 
credit system, which imports something more than personal con- 
fidence and deferred payment. The credit system is that by 
which not only personal confidence exists between the parties, 
inducing them to sell and deliver goods, and defer the payment, 
but by which the payment is eventually efiected, without resort 
to coin, bullion, or any similar equivalent : it is that by which 
commodities or services are made to pay for commodities or ser- 
vices : it is a system by which men apply their credits to the 
extinguishment of their debts. It embraces all the devices by 
which payments are properly made, without the use of the pre- 
cious metals, except cases of strict barter. 

Under the credit system, no equivalent is given at the time 
of sale, the payment being postponed for a time definite or inde- 


T II E C R E D I T S Y S T E M . 189 

finite ; the payments for commodities arc separated from the 
actual transactions of sale and purchase ; the articles of trade 
are bought and sold, and distributed for consumption at home 
and abroad — the payments accruing being reserved for a sepa- 
rate and a distinct department of commerce. 

This is in direct contrast ^vith the cash or money system, in 
which every article is either paid for in the precious metals at 
the time of delivery, or at some time afterwards. These two 
systems work side by side ; and though frequently much blended 
in operation, the distinction between them is plain enough to be 
always kept in view. It must, indeed, be strictly regarded by 
those who would understand the subject of money and credit. 

The importance of the credit system may be estimated from 
the fact, that in Great Britain and the United States more than 
95 per cent, in value of all the payments of business and of 
trade are effected by its means. The credit system is employed 
with effect wherever civilization extends ; and it may be added, 
in not very far from the proportion in which civilization pre- 
vails. It deserves, therefore, not only to be studied, but to be 
understood in its most simple elements, as well as in its most 
extensive ramifications. 

Next to the industry which is applied to the actual produc- 
tion of the commodities of human use and consumption, the chief 
business of men in civilized society is to exchange these commo- 
dities, one for another. In the subdivision of labor which then 
takes place, the whole production is so divided that each man, 
or class of men, makes but one thing, or but the part of one 
thing. This makes an incessant process of exchange necessary. 
Each producer, or class of producers, exchanges his particular 
product for all the variety of articles of food, raiment, &c., Avhich 
go to make up his or their entire consumption. One great prob- 
lem of industry is to effect these exchanges with the greatest 
rapidity, ease, and at the least expense. If article could be ex- 
changed for article, as savages make their exchanges, vast 
expense vv'ould be saved. This, in civilized society, is impossi- 
ble, because of the variety of products, and the widely separated 
position of the parties. To effect this exchange, and to secure 


other important advantages, society lias, with the progress of 
civilization, resolved itself into various classes, Avhicli minister, 
by this subdivision, more effectually to the general interests. 
One class has charge of civil administration ; one of education ; 
one of the public duties of religion ; one is made up of physi- 
cians ; another of lawyers ; one is engaged in the fine arts ; 
another in manufactures ; another in agriculture ; another in 
commerce, or the distribution of the products of others' indus- 
try ; and another in the business of payments, as brokers, 
bankers, and dealers in exchange. All these, and many other 
classes, require the services or consume the products of each 
other. They deal with each other as classes, and as individuals. 
Every individual exchanges his services, or labor, or products, 
for such of all the others as he requires. This exchange, though 
often very circuitous, is certain, and occurs as the result of the 
business of every individual. Whatever the medium of this ex- 
change, whatever transactions intervene, the object of each 
party is simply to exchange ^Yhat he has to dispose of, whether 
services, labor or commodities, for what he wishes to obtain from 
others. Each individual, in fact, directly or indirectly pays for 
what he purchases with that which he has to sell. This, as we 
shall perceive in our further progress, is the true basis of the 
credit system. 

The importance of fully appreciating the functions and agency 
of the money of account becomes very apparent when we 
attempt to enter upon the subject of the credit system. In all 
the transactions of sale taking place under the credit system, 
the actual use of the precious metals is dispensed with. They 
are only employed to pay balances of account, and generally 
only as bullion. It is only in the retail trade that coins are em- 
ployed in the purchase of goods. The whole expression of 
prices, all the entries of book-keeping, all statements of amounts 
in bills of exchange, promissory notes, and other securities, are 
made in the language of the money of account. All the trans- 
actions of trade, foreign and domestic, which are made verbally 
or on paper, depend therefore on the agency of the money of 
account. Values are not expressed in coins, but in money of 


account ; the price of coins and bullion are thus stated, and 
cannot be stated any other way. The language in which prices 
are expressed is illimitable, as the language in which ideas are 
expressed. There is no paucity in the language of prices. 
Some suppose that a strict relation exists between the rate of 
prices and the quantity of money ; this supposition is ground- 
less. There is a mutual dependence between prices and pay- 
ments : that is, if the medium in which the payments of a coun- 
try are made becomes very scarce, or if the processes and 
adjustments by the credit system become disturbed, and thus 
checked, prices may be afTccted by the necessities of the holders 
of commodities, who may be compelled to sacrifice goods to meet 
their engagements. But these reductions will not so affect the 
prices of other kinds of commodities, the holders of which may 
not be under that necessity. The subject of prices will be spe- 
cially considered hereafter ; they will be found to depend far 
more on other elements, than on the plenty or the scarcity of 

The credit system could not exist for a day, but by the aid 
of a money of account. It can dispense with the use of the pre- 
cious metals to a very great extent ; but it cannot operate at 
all but through the agency of a money of account. During the 
suspension of specie payments in Great Britain, between 1797 
and 1822, the entire payments of the country, in all transac- 
tions above the merest retail trade, were made under the opera- 
tion and by the devices of the credit system. INIoney was not 
employed in any large payments. Even balances were paid in 
notes of the Bank of England, by law a legal tender in payment 
of all debts. 

We have said that the credit system operates by a separation 
of the payments of business and trade from the transactions 
which originate the payments. The business proceeds in one 
channel, and the payments in another. This is one instance, 
out of many, of that division of labor which is extending to all 
the employments of society ; and in none has it proved more 
useful or effective than in that of payments. It has introduced 
an economy which may be said to correspond to the difterence 


between the amount of payments made in money and tlie 
amount made by means of credit. It may be doubted whether 
any saving ever made in the processes of business can be com- 
pared with this. 

By the agency of money of account all prices and valuations 
are fixed, expressed verbally, stated in writing, entered in books 
of account, set forth in promissory notes, bills of exchange, and 
other securities ; all the values or amounts involved are thus stated 
and preserved for adjustment or future payment. For every 
article sold upon time a debt and a credit of exactly equal amount 
are created ; there is a debtor and a creditor — the one having 
to pay the exact sum which the other is to receive. If the 
debtor can purchase that credit, he becomes both the debtor 
and creditor, and both debt and credit are extinguished, being 
merged in the same person. The same extinguishment occurs 
when some third party assumes the place of the debtor, and 
also purchases the credit ; both debt and credit meet in the 
same person, and are merged. What is thus true of every case 
of debt and credit between any two persons who become debtor 
and creditor, and of a tkird party who may step in and take 
the place of both, is true of the whole class of debtors and cre- 
ditors. To a very large extent they are the same persons, 
because the persons who take credit largely are the persons who 
give it largely. The creditors and debtors are, therefore, 
mainly the same persons. It is among persons who thus 
mutually occupy the relation of debtor and creditor, that the 
credit system effects an adjustment or payment without the use 
of money. The debtor needs only to purchase or redeem the 
amount of credits which correspond to his debts. As every 
debtor may be presumed to have incurred his debt in the pur- 
chase of some commodity which is to be sold again in the same, 
or in some other shape — for to this class belongs the largest 
class of debts and credits — he may be supposed to have the 
wherewithal to pay his debt. The merchant who purchases 
goods to sell again, or the manufacturer who purchases raw 
material for his special branch of industry, may be supposed to 
have obtained, by incurring the debt, that which, when sold, 


■will be of siifEcicnt value to pay llie debt. In their positions it 
is not necessary that they should sell for only gold or silver. 
All they need is to become creditors for the amount of the sale, 
and the credits thus obtained ^vil], by the adjustments of the 
credit system, pay their debts. So any one who is debtor and 
creditor to the same amount will be able, by the devices of the 
credit system, to set one against the other, and bo discharged. 
As the person who sells commodities for gold or silver does not 
keep these metals, but employs them in turn to purchase what 
he may require, so he who sells upon a credit, by which another 
person becomes his debtor in a note or bill of exchange, does 
not keep these securities, but employs them, or the proceeds of 
them, to make other purchases or payments. The credit system 
does not, then, really furnish a substitute for money, so much 
as a mode of dispensing Avith it. It is dispensed with at the 
time a purchase is made, by stating the amount in money of 
account, and postponing the day of payment ; it is dispensed 
with at the day of payment, because the debt is adjusted or paid 
by a process which does not require the aid of gold or silver. All 
business men who avail themselves of the credit system have 
debts (notes) to pay ; the credits (the same notes) made by in- 
curring these debts are the most abundant, as well as the most 
convenient, and the most easily obtainable medium in which pay- 
ment can be effected. The debts are all to be paid, and the 
credits are all to be extinguished ; the debtors become the active 
agents in this. Debtors arc under a severe necessity of meeting 
every payment : no human obligation, however many may be 
the exceptions, is better observed than the payment of debts, 
and especially is this the case among those who most employ 
the credit system. Credit is often said to be money; it is 
really and practically preferable to money, besides being, as a 
medium, cheaper ; it costs very little more than good faith and 
good management. He who employs a thousand dollars to make 
a purchase, has first to purchase or borrow the thousand dollars; 
whilst he who makes the same purchase upon credit not only 
purchases without money, but the commodities he purchases will 
provide the means to pay his debt. The same commodities of 


trade or industry, on account of which debts are chiefly con 
tracted, being commodities in general demand, "will be suflficient 
to purchase or redeem credits enough to pay the debts con- 
tracted in purchasing them. 

It Avill be seen, by this, that the credit system is really a 
mode of exchanging commodities or services without the inter- 
vention of any medium of value. The things to be sold or ex- 
changed are valued in money of account. The person parting 
with them takes a security for the value, and employs that secu- 
rity in the purchase of other things, or in the payment of debts 
contracted for them. In short, by the credit system men ex- 
change what they have for what they want ; the one pays for 
the other, according to prices and sums stated in money of 
account; the payments arc made in some of the various ways 
by which the credit system cftects its adjustments. The credit 
system is, then, a complicated system of accounts between those 
"who avail themselves of it. Whether this system is susceptible 
of being simplified, and made still more efficient and economical, 
deserves attention ; but our object is first to make its present 
mode of operation well understood. 

The processes of adjustment or payment by the credit system 
are very various and complicated, and will, therefore, be treated 
hereafter in some detail. It may tend to clear our conceptions, 
however, if Ave consider this system in some of its leading gene- 
ral features. We have already remarked that the trade or busi- 
ness depending on payments proceeds as if they were made — 
the making and arranging the payments becoming a separate 
occupation. That this may be done with more efficiency, the 
whole indebtedness becomes, in fact, a fund for this purpose. 
At all times there is a large amount, in the aggregate of debts, 
incurred for goods sold ; but this aggregate, however great, 
ao-recs precisely with the amount of credits. There is, then, a 
fund of credits, or credit securities, exactly equal to the amount 
of the debts. So long as this fund of credits is in the hands of 
individuals, it is not very active as a medium of payment. But 
when large sums come to be concentrated in the banks, it be- 
comes an efficient manageable fund for the extinction of debts. 


The whole amount of the credits ma}-, in this way, become 
avaihible as a medium of payment. It is divisible, at a mo- 
ment's -warning, into sums of any amount; and as applicable, in 
payment of debts, as any other medium could possibly be. As 
all the debts which originate in the credit system are but the 
counterparts of the credits, the credits become an article of 
great demand. Such, indeed, is the magnitude of the transac- 
tions carried on by means of the credit system, being more than 
tenfold all others — and such, of course, the amount of the debts 
and the number of debtors — that no demand is more active, 
urgent and constant than the demand of this large class of 
debtors for these credits, or the means of paying the debts. 
The debtors are, in fact, the holders of the articles of most 
general consumption ; for, that they might be such holders, they 
contracted the debts. They are, then, not only under a strin- 
gent necessity of obtaining credits to pay their debts, but they 
have the best means of obtaining them ; having for sale, pur- 
posely selected, the commodities of daily consumption with the 
use of which the people cannot dispense. The credits, what- 
ever be the shape they take, whether that of negotiable paper, 
bank-notes, or bank deposits, become a general instrument of 
purchase, not because they are money, or representatives of 
money, but because they are the chief medium for paying debts; 
and as such are in great demand among those who have in- 
curred debts by the purchase of articles of general consump- 
tion. The holders of credits employ them in payments to all 
classes of society — industrial, professional, mercantile and 
literary — because all yield commodities or services, and be- 
cause all are consumers. Credits are thus distributed through 
a whole community, through all the ramifications which the 
wants of society can produce ; and they flow thence to the 
hands of those Avho sell the articles which all classes want and 
must have. The great routine of the credit system consists in 
exchanging commodities and services for credits, and then in 
distributing these credits widely and minutely in society, whence 
they flow, under the demands of constant consumption, to the 
holders of the articles of constant use, by whom they are extin- 


guishcd in payment of their debts. This operation never ceases 
its movements ; new credits and new debts are created every 
day ; old debts and credits are merged, set oif, or extinguished 
everyday; and the whole of the intermediate movements are 
incessantly going on. In all this multifarious business no money 
is employed, and none is needed, but the money of account, ex- 
cept in small transactions. 

It does not follow that there is no longer any office, use, or 
ao-ency for gold or silver coins. It seems to be a new proof of 
the convenience and advantage of coins, that they circulate with 
perfect facility along with the currency of the credit system. 
Either may at any time be employed, as the convenience or in- 
clinations of the parties may suggest. In retail transactions, 
nothing yet known can be preferable to coins of silver or gold. 
In small transactions, as Avell as in the balances which accrue in 
large business, it is frequently necessary to use a medium which 
is at the same time an actual equivalent. The business of the 
world is so much increased under the impulses and facilities of 
the credit system, that full employment for the precious metals 
is found in the payment of the fractions. The credit system 
pays the millions, the thousands, and the hundreds ; gold and 
silver is employed to pay the tens, and fives, and ones. In many 
parts of the United States only the fractions under one dollar 
are paid in coins. It is a matter, certainly, in which people 
may make their choice. In the United States, the people follow 
their own inclinations : there is a different law, on the subject 
of banking, in almost every State. The Constitution of the 
United States prohibits anything but gold and silver coin being 
made a legal tender in payment of debts : yet, with this legal 
right to demand gold or silver coins, not one hundred dollars in 
one million of the debts over fifty dollars are ever paid or 
exacted in coin. The people prefer the adjustments of the 
credit system. In New England, in New York, New Jersey, Dela- 
Avare, and many other States, they employ notes of denomination 
as low as one dollar. The saving in this is very great. The 
expediency is a separate question. It is safe and proper to do 


SO probably just in proportion to the virtue, intelligence and 
commercial integrity of the people. 

We have seen that the real fund employed in the payment of 
debts is that arising from the transaction of the business by 
which the debts were created. One circumstance attending this 
is of very great importance — the fund applicable by the credit 
system to the payments, is precisely of sufficient amount to pay 
all the debts, for the credit and debt are counterparts. If not 
diverted from this, its proper channel, there would rarely be 
any difficulty in finding means to pay debts. Individuals might 
have trouble, owing to peculiar circumstances, in meeting pay- 
ments ; but a whole class or body of men could not, unless from 
other causes, because the fund for payment could never be 
short, and interest upon credits could never go to a high rate. 
This suggests that a distinction should be made by law between 
interest on credits and interest on money. 

The blending credits and money, and treating tliem mainly 
as identical, has been a fruitful source of error and mischief. 
This fatal policy has been the parent of more commercial revul- 
sions than all other causes combined ; it has ruined millions of 
men of business in Great Britain and in the United States. 
The fund of credits is really and properly applicable to the 
payment of debts of trade incurred in the distribution of the 
articles of general consumption ; that is, to the extinction of 
both debts and credits — a relation in regard to each transac- 
tion only intended to be temporary. Any diversion of credits 
from the legitimate purpose of paying such debts is hazardous ; 
for, as they amount to the same sum as the debts, there can 
never be more than enough. This credit system being founded 
on human confidence, is by its nature, it is true, extremely 
elastic, and capable of bearing much abuse ; yet, for the same 
reason, it is subject to sudden collapse and utter ruin. Under 
our present system of credit, a great amount of credits and 
securities are annually diverted from their legitimate purposes, 
and employed as money. This abuse is met by a prolongation 
of the time of adjustment ; that is, further time of payment is 


given to those Avho are not prepared to meet engagements. 
This extension of time is often liberally granted for years, but 
the period is sure to come when creditors must realize their 
balances : no further time can be given ; the only alternative is 
payment or bankruptcy. Debts are then often spunged ; or, 
rather, a certain number of debtors fail, and never pay, and 
the equivalent amount of credits become worthless. 

The great temptation to this diversion of credits arises from 
the fact that, by our present system, they are required to be 
convertible at will into gold or silver. The whole of the credits 
which are made active — that is, all that are turned into bank- 
notes or bank deposits — are required to be convertible. In 
point of fact they are not so convertible, and they cannot possi- 
bly be, as they amount at all times to a sum from ten to twenty 
times greater than any possible amount of gold and silver which 
would be available for such a purpose. This legal, but not real 
convertibility of these credits gives them the character, and 
makes them available to a very great extent as money ; it de- 
ceives and misleads, without any equivalent benefit. The 
assumed convertibility does not add, in the least degree, to the 
efficiency or availability of the credits for the payment of debts, 
nor does it make such payment any more valid. But for this 
pretended convertibility, it would be difficult to divert credits 
largely from their true channels ; it is a mischief without any 
redeeming circumstance. 

If it be alleged, in favor of this convertibility, that the pro- 
missory notes and bills of exchange are, by law, payable at 
maturity in gold or silver ; that is very true, it may be replied, 
but it is only at maturity, when no one ever thinks of demand- 
ing gold or silver, because payment is just as acceptable and 
valid in the usual mode. By the course to which we object, the 
whole amount of these credits is assumed to be convertible at 
once and continuously ; they are thus turned into a quasi 
money, and applied to all manner of purposes to which money 
is properly applicable. The effect is the same as if promissory 
notes and bills of exchange, whatever be the time of maturity, 


were by law made payable at any moment the holder might 
please to demand the amount in gold or silver. 

But we do not intend here to enter into the consideration of 
the securities proper to be exacted from banks or bankers, who 
issue bank-notes to serve the purposes of mone}'. We may dis- 
cuss that hereafter, and in its place. ^ Neither do we now 
assert that there is any better security for those who arc the 
receivers of bank-notes, than convertibility. What is now sug- 
gested is, that we carry convertibility too far when we attempt 
to make far the larger portion of the great fund of credits con- 
vertible, on demand, into gold or silver. This fund, which is 
nothing else but the evidence of prolonged credits granted in 
the progress of industry, trade and consumption, and which, 
through the processes of the credit system, are the appropriate 
medium for the discharge of corresponding debts, neither the 
necessities of business, nor the demands of convenience, require 
to be convertible on demand into gold or silver. 

This requirement, as it operates, is one of the most mis- 
chievous blunders of modern times. When two merchants keep 
an account in their respective books against each other, they 
settle these accounts, adjust the respective debts, and balance 
or extinguish them, without the idea of convertibility crossing 
their minds. What two merchants thus do directly for each 
other, the books of banks and bankers do for the community of 
business men. On their books these men find themselves 
charged Avith their debts, against which they seek to bring their 
credits, that, meeting on the same books, both debts and credits 
may be alike extinguished. With this operation convertibility 
has little to do, and need have nothing. The mischief of this 
requirement does not spring from the law which makes every 
debt payable in gold or silver, for that leaves every creditor to 
accept any mode of payment which he pleases : it is as absurd, 
however, as if every debtor were placed under the impossible 

• Considered in the chapter on the Bank of England, and in that on the 
Banks of the United States. 


oblio-ation to keep gold and silver in his possession sufficient to 
pay, on demand, every debt he owed. 

In all ages of the world efforts, more or less successful, have 
been made to dispense with the precious metals as a very expen- 
sive medium of exchange. The success of these experiments 
has been in proportion to the state of civilization, and the pro- 
gress of mercantile morality. It would lead us into too great 
detail to trace the history of these efforts, or even to specify 
their various kinds. We shall only describe a few of these 
modes of payment, such as are not only characteristic of others, 
but effective in themselves. Our object in this will be, not to 
give a general view of each topic, but merely that aspect of each 
which relates to payments. Many of those subjects have various 
bearings, very complicated relations, and diverse points of view. 
Our attention will be confined to that of payments, or commer- 
cial liquidation. These topics may be taken up in the following 
order: — Books of account, Promissory notes. Bills of exchange, 
Bank-notes, Bank deposits, and Clearing-houses. 

§ 2. Books of account. 

However numerous the phases of the credit system, it may be 
reo"arded as having its best summary in book-keeping. When two 
persons in business, having frequent dealings with each other, 
instead of making payment or passing an equivalent at each 
transaction, simply debit each other in account with the proper 
amount, their payments are only deferred to a future day. 
They have separated the business of payment from the transac- 
tion which gave rise to the debt. Each receives and enjoys the 
services or commodities obtained from the other, as his wishes 
or interests dictate ; and each is to make satisfaction, or render 
an equivalent, at a subsequent time. The main object in view 
in their business is, therefore, attained by both before any pay- 
ment is made. 

We may suppose the account between a merchant and manu- 
facturer to stand thus, the debt and credit being reversed on 
their respective books : — 



The booJcs 

of J. Blac 

k, a 

{ ilte acconnt 

of J. White. 












,Jan. 1 

To mdze 



1850, Jan. 5 

By mdze.... 



Feb. 2 




" Feb. 6 





Mar. 3 




" Mar. 7 





April 4 




" April 8 





May 5 




" May 9 





June 6 




'•' June 10 




July 7 




" July 11 



00 1 


Aug. 8 




" Aug. 12 





Sept. 9 




" Sept. 14 





Oct. 10 




" Oct. 16 





Nov. 11 




" Nov. 17 




Dec. 12 




" Dec. 20 





" 31 

To bal. Cc 

ish 100 




If two persons have dealt tlius with each other during a year, 
their books of account will be a check upon each other ; and if 
both are correct, will exhibit the same result. At the end of the 
year, it will be found that J. Black has, at various dates, sold 
goods to J. White to the total amount of .^18,600 ; and that J. 
White has sold goods, during the same time, to J. Black to the 
total amount of $18,700. Each of these parties thus received 
large quantities of goods of great value from the other, without 
any payment. The books are the evidence of the transaction, 
and express, in money of account, the value of the goods, or the 
amount of the mutual indebtedness. AYhen these parties meet 
at the end of the year, for the settlement of their accounts, they 
have but to strike a balance, which shows that J. Black has to 
pay to J. White $100 ; and this being done, the whole indebted- 
ness of $18,600 on one side, and $18,700 on the other, is fully 
discharged and paid. The goods delivered by the one have 
paid for the goods delivered by the other. The $18,600 thus 
paid by each of the parties is as effectual, satisfactory and 
legal as the payment of the balance of $100 in coins by J. 
Black. Transactions of this kind are of constant occurrence in 
all civilized countries. It cannot be alleged, with any pretence 
of reason, that the business thus carried on could have been any 
better done, if each delivery of goods had been paid for at the 


time in coins. This would have involved the necessity of obtain- 
ing and keeping on hand, during all the year, a considerable 
sum in coins. 

If we suppose that, at the time of the adjustment of this 
account, each party had refused to accept of any payment but 
gold and silver, the only legal tender in payment of debts, it 
would have required $37,300 in coins to have paid off the two 
debts ; or if the parties could have so far favored each other, 
as that one should pay first, then the one who came prepared 
might at once pay over to the other $18,600, and immediately 
receive it back. 

It is obvious enough that there can be no advantage in one 
mode of payment over another, so that the party paid is fully 
satisfied. Every payment in coin involves an outlay of equiva- 
lent amount to obtain the quantity necessaiy. The parties to 
the account above stated, if their sales had been made in coin as 
they proceeded, would have been obliged to part with many 
thousand dollars worth of their goods in the beginning, to obtain 
the medium of exchange necessary to carry on their subsequent 
business. This expensive medium is saved in all cases where it 
is practicable to effect payments by the simple but sure process 
of setting off debts against debts, and of making commodities 
sold pay for commodities bought. 

The same mode of adjustment is equally applicable where the 
articles sold and entered in account are coins or bullion. And 
so of any other indebtedness, whether incurred at the time of 
the charge, or whether of debts existing before in the same, or 
any other form. 

What is thus stated of two persons keeping mutual accounts 
is equally true of three or more ; their accounts, when pro- 
perly made up and balanced, display at once the real state 
of their mutual indebtedness ; and each one will be willing to 
surrender his claims upon others for a similar discharge of his 
own debts. 

To carry the supposition to an extreme for the sake of illus- 
tration, each of two parties may purchase or assume all the 
debts of the other to all persons, and charge these assumptions 


in their respective accounts. The Avhole indebtedness thus 
mutually incurred can be extinguished by the simple process of 
set-ofl', except the balance, which may be in favor of one or the 

It is very obvious that the usefulness of book-keeping, as a 
mode of extinguishing indebtedness, has never reached its prac- 
tical limits. In theory all the debts of commerce may be thus 
set-off or paid, because the debts and credits are exactly equal, 
and of course would balance each other. But if such a general 
balance be impracticable, by reason of the complications it in- 
volves, it is no objection to employing this agency to its utmost 
proper limit as the cheapest and safest mode of payment ever 
devised. It is the chief object of every man of business who 
avails himself largely of credit, to apply the credits he gives to 
the payment or extinguishment of those he takes. He would 
desire nothing better than to be charged, in books of account, 
with every debt he owes, if, in the same books, he could have 
credit for the debts or sums due to him. If all business men of 
a particular locality were to keep their accounts in one set of 
books, every man would be thus debited and credited, and only 
their balances would remain to be paid. It is certainly desirable 
that an agency so effective and safe should be carried to a wider 
range of operation than has yet been attempted. 

This subject deserves the more attention, as many of the pro- 
cesses and devices of the credit system derive their chief efficacy 
and advantage from the simple methods of book-keeping. The 
man of trade who asks a bank to discount for him the notes he 
has taken in business, and give him credit for the proceeds on 
its books, and who applies the credits thus obtained to pay the 
notes he has given to others Avhich are presented to him for pay- 
ment by the same bank, has merely availed himself of the books 
of the bank, on which he is charged with his debts due to others, 
and credited with the debts of others payable to him. 

What proportion of the whole payments of the credit system 
is made in this way cannot be estimated, nor even approximated. 
But it may be said that, in one aspect of the business, the whole 
operation of the credit system may be resolved into the methods 


of book-keeping. The grand result of the system, so far as the 
payments of trade are effected by it, is that the products of in- 
dustry, and the services and labor of men, are exchanged at 
prices expressed in money of account ; and what men thus give 
or deliver is made to pay for "what they receive. Whatever the 
complications which intervene, or whatever the machinery era- 
ployed, it is all resolvable into an adjustment of accounts. It 
would shed a flood of light on the whole movements of the credit 
system, if some one would trace out and exhibit distinctly the 
agency of book accounts in accomplishing that vast sum of pay- 
ments which are effected without resorting to either coins or 
bullion. Every bank, banker, broker, and other agent in the 
business of payments, must rely on books of account to keep up 
the progress of the business, and insure accuracy. Books of 
account intervene, therefore, in every step of the great process 
of adjustment, by which the chief payments of trade are 


2 1. Promissory notes and bills of exchange, their nature and efficiency as 
instruments of payment — As evidences of debt, they aid in separating the 
business of trade from that of payments — Negotiation of in j^aynenis — 
Dealers in exchange — Bankers — Concentration of debts and credits — 
Balances — Use of notes and bills in Lancashire, England, and in the 
United States — Limits of their use in 2^<-'ynicnis — Mutual debts and 

A HIGH antiquity is claimed for the use of bills of exchange : 
though many authorities ascribe their invention to the Jews, 
who were expelled from France in the years 640 and 1181, and 
who, taking refuge in Lombardy, were afterwards called Lom- 
bards. It is very safe to assign them an ancient date, as their 
use is so obvious among merchants, that we can scarcely ima 
gine how such a device could be overlooked among men in trade 
Avho had learned the art of writing. 

. Any promise to pay in writing is a promissory note ; and any 
direction in Avriting to another to pay a sum for the writer is a 
bill of exchange. A minute history of these forms of security 
might be very interesting ; but our object is merely to show 
their nature, use and efficiency, rather than to recount their his- 
tory — a task which belongs to the annals of commerce. For pre- 
sent purposes they may be considered together, distinguishing, 
as we proceed, their different operation. 

Promissory notes and bills of exchange arc a part of that sys- 
tem by which the payments of trade are separated, both in time 
and operation, from the trade in which they originate. They 
are evidences of the debt conse(iuent upon the transactions 
which gave rise to them. Their day of payment is appointed 
on their face ; and they move in the channels which conduct 
them to that mode of liquidation selected by the parties owning 



tliem. Their utility is not confined to postponing the day of 
payment, and aflfording time for arrangement ; they may per- 
form an intermediate office. The seller of goods for a thousand 
dollars, who takes therefor a bill or note payable in three 
months, can only realize the money at maturity of the paper ; 
but he can at once purchase commodities to that amount, and 
transfer the bill or note in payment. He may thus, by the in- 
tervention of the paper, exchange goods to the amount of a 
thousand dollars for goods to that amount ; that is, the goods 
sold will become the payment for the goods purchased. One 
man of business may say to another, " I have sold to A. B. 
goods to the value of a thousand dollars ; I will order him to 
pay you that amount in discharge of what I now purchase from 
you;" and that order in writing would be a bill of exchange: 
or, he may say, " I will give you, in payment, a written pro- 
mise to pay which I took from him, and wliich I will direct him 
to pay to you;" and that would be negotiating a promissory 
note, an act equivalent to drawing a bill of exchange, for the 
negotiator or indorser thereby orders his debtor to pay the 
amount of the debt to another. Promissory notes and bills of 
exchange are thus employed to purchase commodities, to be again 
sold for other notes and bills, which are in their turn employed 
to purchase other commodities. It is mainly by the primary 
agency of bills of exchange and promissory notes that the whole 
mass of goods in commerce are collected, transported, bought 
and sold, and finally distributed to the ultimate consumers with 
very little intervention of money in the shape of coins, except 
for the merest retail operations. This movement owes some of 
its power and efficiency to the circulation of these bills and 
notes in actual payment. For he who has received such pay- 
ment, and with that paper purchases what he requires, has only 
done what he would have done with the money : he has ex- 
changed the goods he had for those he wanted. The same end 
is in view, and the same end is thus attained, whether the inter- 
vening medium be money, or individual promises to pay. The 
natural progress of this negotiation Avould be to concentrate the 
paper thus issued for goods in the hands of the large dealers, 


■\vlio either become virtually private bankers, or have large 
operations with those in that business. 

The common mode of employing bills of exchange and pro- 
missory notes, in commercial places where there are no public 
banks, is by intervention of private bankers and dealers in ex- 
change. These become purchasers and depositors of nearly all 
the individual engagements to pay money in circulation. If, for 
the sake of clearness, we suppose that in any such community 
all this paper had fallen into the hands of two such bankers or 
dealers, they would between them hold claims upon all who had 
issued such paper ; that is, all who had to pay money on such 
liabilities would have to pay it to one or the other of these 
dealers in paper, or to both of them. All these payers would be 
also receivers ; and they would not only pay as above, but 
receive through the same two agents of exchange. Such payers 
and receivers being the business men, are debtors and creditors 
among themselves : all the money they owe is payable among 
themselves, all the debts being the equivalent and counterpart 
of all the credits. Tiie bankers would soon reduce the whole 
liabilities and ci'edits of their customers to an account between 
themselves and the balances due their customers. The debts 
and credits of each individual in trade, so far as these had 
taken the shape of bills payable, would be brought face to face 
in their books of account, and there balanced. If these private 
bankers enjoyed, in an equal degree, the public patronage, their 
books would not be wide of an even balance. They would, in 
fact, have assumed the payment of all their customers' debts, in 
consideration of having assigned to them all their customers' 
credits ; which they could safely do, because credits and debts 
exactly correspond. The transfer of the whole of the credits 
absolutely to one man would, in its effects, work a total extinc- 
tion of the whole : the transfer of the whole to two would only 
require an adjustment to be made between the two according to 
the amounts they had respectively received. This discharge of 
the whole of the debts, by their meeting in the same hands 
Avith the whole of the credits, does not so close the matter as to 
leave nothing further to be dune. If every man in trade owes, 


in notes and bills, precisely the same sum wliich is owing to him 
in the same manner, then the meeting of all the debts and 
credits in the same hands •would be an absolute and final dis- 
charge of the whole. But as most men in trade make a balance 
on their bills payable and receivable, favorable or unfavorable, 
these balances only remain to be adjusted : that is, each indi- 
vidual must receive what is coming to him on his bills receivable 
more than he has to pay on his bills payable ; and each one 
must pay what he is indebted over the amount of his bills 
receivable. Tlie sum of these balances is known to be small : 
men's profits, on the average, bear a small proportion to the 
whole amount of their transactions. 

It was better understood centuries past than it is now, that 
by such means payments to a vast amount could be effected ; 
better understood, because the complications of trade were fewer 
then than at present, and the whole operation of the adjustment 
could be distinctly traced and comprehended by those conversant 
with business. This mode of liquidation has been practised for 
ages, not only where greater facilities were wanting, but in 
Venice, Genoa, Lyons, and Amsterdam, where great facilities 
were enjoyed, because it was not only consistent with the pro- 
cesses of the great banks and the fairs, but could aid their opera- 
tion, and receive aid from them. This mode is not less efficient 
at the present day, as we shall have occasion hereafter to 

Very much the largest proportion in value of the transactions 
of trade, domestic and foreign, is carried on by the issue of pro- 
missory notes and bills of exchange. These securities are thus 
used to postpone the time of payment, to serve as evidence of 
indebtedness, and to operate as a medium of payment. As 
every negotiation of such notes or bills effects a payment, their 
circulation measures the amount of the payments accomplished. 
In the manufacturing districts of England, especially in Lanca- 
shire, enormous sums arc annually paid by this kind of circula- 
tion. Long lists of names, besides those on the back, are fre- 
quently appended to notes and bills there, which show they have 
paid a debt for every name. 


The promissory notes, after performing their round of pay- 
ments, and eifecting a proportionable transfer and exchange of 
goods, are finally discharged by bank-notes, or checks on the 
books of a bank, or on the books of individual merchants. The 
domestic bills of exchange thus used in Lancashire, after under- 
going this circulation, are sent to London, where they are pay- 
able, and are there extinguished or discharged in some of the 
banks of that city. It is not our purpose to point out here 
more than the use which is made of these securities before they 
mature. Their discharge or payment at maturity will be con- 
sidered under another head. The sum of the exchanges of goods 
effected by this kind of circulation in England has been so great 
as to have attracted special attention and Parliamentary in- 
quiry.' In this country this mode of payment is more or less 
employed throughout its whole extent ; but in no part to such 
an extent as in England. The law, process and effect of this 
kind of circulation is nearly identical here and there. Un- 
doubtedly, a large amount of goods change hands by this mode 
of payment every year ; but in a widely-scattered population 
like ours, a limit to this mode of payment is soon encountered 
in a want of mutual knowledge and confidence. It is thus tluit 
a much larger proportion of bank-notes is used here than in 
England. We cannot, of course, even conjecture the sum of 
the exchanges of goods effected in the United States by the 

' One of the witnesses before a Parliamentary committee, in May, 1826, 
testified that bills of exchange on London, at GO days were the principal 
part of the circulating medium in Lancashire. They were issued to as low 
an amount as £5. They circulated from hand to hand in payment, being 
indorsed by each party paying them. A witness being asked if he had 
seen tliese bills of exchange as low as XIO, with 50 or GO names upon 
them, he replied: — "Yes, with twice that number. I have seen slips of 
paper attached to a bill as long as a sheet of paper, and when that was 
filled, another attached to that." 

Another testified before the same committee, that the bills between £10 
and £30 constituted four-fifths of the circulation ; but that the proportion 
of the whole of the bills of all amounts to tlie circulation of bank-notes and 
coin was 20 to 1. Some bankers estimated that proportion as high as 50 
to 1. — Report of the Lords' Committee on I'romis^ury Notes, d'c., printed 
May 2Gth, 1«2G, pages 183 and 18G. 


negotiation of bills or notes. It is one of the great elements of 
commercial adjustment. The payment or extinguishment of 
these bills here, as in England, is eifected generally in the 
banks, or through facilities furnished by banks. 

But however awkward and inconvenient promissory notes and 
bills of exchange as a medium of payment, when employed speci- 
fically for that purpose, they are susceptible of being so managed 
as to be converted into one of the most convenient, rapid and 
effective modes of payment yet discovered. A man of business 
may be the holder, for instance, of $50,000 of such paper in 
twenty different sums, from $595 to $9595. He may be able 
to employ these notes, to some extent, in his large transactions, 
but meets constant obstacles in the amounts which do not suit, 
and in the names of drawers and indorsers which may not be 
sufficiently known. If he carries these notes to a banker of 
good standing, and obtains a credit on his books for the whole 
sum less the interest, with the privilege of drawing checks for 
the amount at his pleasure, it is manifest that he can have 
nothing more convenient nor effective for the payment of his 
notes as they mature, or the making any needful purchases for 
continuance of his business. His twenty notes are, by this pro- 
cess, melted into one fund, which will flow out at his own order, 
slowly or rapidly, as he may require. 

What the bankers do for one man, they do for a whole com- 
munity of business men. Their books become a vast reservoir 
of such funds, upon which the owners draw as they have occa- 
sion. These reservoirs of funds really represent an amount for 
which commodities have been sold ; the transactions have taken 
place ; the promissory notes are both evidence of the transac- 
tions, and securities for the amount of the sales. As men of 
business give notes as well as take them, and as vastly the 
largest proportion of the business paper actually represents a 
mutual indebtedness, the great office of this fund is to enable 
the parties to pay and extinguish their mutual debts. If one 
has converted his notes into a credit, at liis banker's, of $50,000, 
and owes $40,000, it merely reduces his credit to $10,000 to 
pay off his debts. This is not ordy the best use to make of his 


credit, but it is indispensable to the progress of business. The 
transactions of business proceed as this indebtedness is created ; 
the purchases, sales, the production, distribution and consump- 
tion involved, all go on under the facilities of the credit system, 
in the business to which wo refer, by the issue of the paper of 
the parties. The payment of this paper is effected by a series 
of subsequent transactions, as a separate business. The chief 
facility by which this payment is accomplished arises from the 
fact that the debt is mutual. In every million, about nine hun- 
dred thousand is strictly mutual, and is susceptible, therefore, 
of ultimate payment by being balanced on the books of the 
bankers. The mode in which the balancing process is effected 
is very obvious, but will be specially explained under the heads 
of bank deposits and clearing houses. If one man is the holder 
of more of the paper of others than he has issued to others, 
another has issued a greater amount than he holds ; and of all 
this variety, the credits of the parties at their bankers is a true 
reflection. These credits become, then, the expression, in 
money of account, of what has taken place and is going on in 
the channels of business in which commodities destined to con- 
sumption travel. 

The great fund out of which the payments of trade or busi- 
ness is made is the credits granted upon the business or com- 
mercial pa])er. This fund represents commodities sold and to 
be paid for ; the parties who transact the business out of which 
the fund arises are both creditors and debtors. They are not 
only willing, but it is their interest to apply their credits to ex- 
tinguish or pay their debts. No creditor can ask any more 
efiective payment to himself than that which enables him to pay 
his own debts. If a thousand men in one district have to their 
credit a million, it is probable they will owe among themselves 
nine hundred thousand: this sum can be fully and satisfactorily 
paid by the application of this amount in the credits. Their 
credit of a million will be reduced to one hundred thousand, and 
their wiiole debts as between each other will have been dis- 
charged. This payment is of the same nature, though made 
circuitously, as that which is made directly between two men 


who, having mutual transactions entered on their books of 
account, meet, and, so far us the indebtedness is mutual, dis- 
charge it by a balance. 

In a civilized community, the obligation of a man to pay his 
debts is so sacred and so pressing, that he can desire no better 
medium of payment of that which others owe to him, than that 
which will serve to pay his own debts. 

I 2. Foreign exchange as a means of payment — Complicated formerly ivifJi 
coinage and its evils — Noiv with increased transactions of domestic trade 
— The j)rocesses of foreign trade and payments readily perceived — 
Imports — Exports — Dealers in exchange and hankers — Payments may 
he made in either country — Rate of exchange — Trade with all nations — 
Circuitous exchange as effective as direct — Fluctuations in exchange — 
Tlie economy of this mode of payment increases trade. 

The operation of the exchange between any two or more 
countries, having a mutual commerce, is effective in accomplish- 
ing a very large portion of the payments of that commerce. In 
reference to foreign trade, nations may be taken separately, 
find each nation spoken of as debtor for all that its people have 
imported, and creditor for all that has been exported. The 
business transactions of any country which lead to the exporta- 
tion of commodities, are settled and adjusted at home ; so, also, 
of transactions in foreign goods after they arrive ; but there 
remains to be adjusted or paid the debts and credits arising 
between importers and exporters of the respective countries 
engaged in mutual trade, together Avith the debts and credits 
arising between the respective importers and exporters, and the 
persons from whom they purchase and to whom they sell. 
Upon debts and credits in this posture, foreign exchange is 
brought to bear as a mode of adjustment. The exchange of 
commodities first takes place, prices and amounts are adjusted, 
and then comes the affair of payment as a separate business in 
the hands of different parties, who are devoted to it as an occu- 

Foreign exchange has been long, and is even now by not a 
few, considered a most complicated and perplexed subject, level 


only to the comprelicnsion of merchants of great shrewdness 
and special experience. It Avas, in former times, mixed up with 
many difficult problems of coinage ; with numerous complex 
questions arising out of the various debasements of coins and 
currency, which made it impossible for many to understand its 
mysteries, and possible for only a very few to master its details. 
The days of debasement being pretty well spent, the subject of 
foreign exchange need not now be regarded as so unintelligible 
and forbidding. 

It is not certainly so very hard to conceive of all the debts 
owing by persons in one country to persons in another, and to 
persons in all other countries, as being collectively a sum owing 
by one country to another, or to all other countries. In this 
view, every commercial country may be regarded as being in- 
debted to each country with which it trades for all it has 
imported from each. This debt for imports is mutual to the 
extent of the trade of each with the other. Looking at the 
foreign trade of each country apart from its details and as a 
whole, it is much more simple and easy of comprehension than 
the domestic, which is more difficult to examine in the mass, 
and to separate from its details. The whole process of foreign 
and domestic trade is, in fact, perfectly alike ; for if the trouble 
were taken thoroughly to analyze the home trade, it would be 
found to consist of a series of exports and imports from distinct 
regions or districts, of which every one may be compared to a 
separate nation. The small states of Germany, which carry on 
a foreign trade with each other and the world, are many of them 
no larger than counties in Pennsylvania. The domestic bills 
and other devices by which the payments of home trade are 
effected, perform the same office which is assigned to foreign 
bills in reference to that trade. In our relations with foreign 
countries, we have the advantage of well-defined boundaries, 
and of the custom-house and shipping regulations, to exhibit the 
amount and value of the trade ; also of the fact that foreign 
payments concentrate largely in agencies separate from those 
in which our domestic payments are made. It is much easier, 
therefore, to ascertain the amount of our foreign than of our 


domestic payments. Besides, tlie former bear hardly a com- 
parison in amount with the latter. There is, therefore, apart 
from coinage and its incidents, comparatively little difficulty in 
this subject of foreign exchange. 

In the foreign trade there are two distinct classes of persona 
whose movements, with those of their various agencies, make up 
the operations of the foreign exchange. There are those who 
have exported goods or sent them out of the country, and who 
are entitled to payment from abroad ; and those who have im- 
ported goods, or brought them into the country, and who must 
make payment abroad. If no device of economy, or expedient 
of convenience were resorted to in making these payments, the 
debtors abroad and the debtors at home would be obliged to 
transmit, from their respective countries to the countries of their 
respective creditors, the aggregate sums equivalent to the whole 
foreign trade. This would afford the absurd spectacle of a con- 
tinual movement of the precious metals to effect what the trade 
itself had effected. It is very apparent that the nation which 
has, in the aggregate, exported to the value of a hundred 
millions, and imported to the value of ninety millions, has vir- 
tually paid for the imports by the exports. It is only necessary 
that those who owe the ninety millions for goods imported 
should pay that sum to those who are creditors for goods ex- 
ported, and there would remain only ten millions to be other- 
wise paid. This is, in fact, the process. A class of dealers in 
exchange, who combine this business often with that of banker, 
broker or merchant, become purchasers of the bills drawn by 
the exporters of goods for the proceeds, and the same class 
become sellers of bills to those who, having imported goods, 
have remittances to make for them. If the amount exported is 
an hundred millions, bills to that extent may be drawn and pur- 
chased by these dealers ; and if imports to the amount of ninety 
millions have been made, the dealers can sell exchange to that 
amount ; and by this means a hundred and eighty millions of 
the payments arising out of this foreign commerce will be 
effected : that is, ninety millions' worth of goods exported will 
have been set off against ninety millions' worth imported. The 


main instruments of this payment or adjustment are bills of ex- 
change between the parties engaged in the trade ; these bills 
pass into the hands of those whose business it is to deal in them, 
and who, by keeping an open credit abroad, are always prepared 
to draw for sums to suit purchasers. Thus the amount duo from 
individuals in another country becomes a fund upon which bills 
can be drawn, in sums to suit those who have payments to make 

As the dealers in exchange have correspondents in many 
countries, it is of little moment to the progress or the fticility of 
the payment Avhether the bills drawn for that purpose arc all 
drawn in one or the other, or partly in both countries : the main 
thing to be effected being merely to balance the accounts so far 
as equal. This is a matter which proceeds wholly by individual 
choice and management. In our trade with Europe, the ex- 
change business is chiefly done at home ; that is, our exporters 
generally sell their bills at home, and our importers make their 
payments by specie exported or bills remitted. The market for 
the exchange is, then, with us ; tlie barometer of the price of 
exchange is on our side of the Avatcr. The price at which ex- 
porters can sell their bills, and at which importers must pur- 
chase them, is subject to fluctuations arising from the supply 
and demand, and from otlier causes which affect prices gene- 
rally. It is quite probable that the pressure of the demand is 
more steady, and that the adequacy of the supply is better 
known, Avliere the market is chiefly on one side. The agency 
of the dealers on the other side is to collect the proceeds of the 
bills drawn upon the exports, and hold them subject to the bills 
drawn by dealers in exchange in the regular course of their 
business. On our side the dealers in exchange, whilst emplo3'ed 
in purchasing bills for which they pay here, are also engageil in 
selling bills for wliich they receive [laymcut here: on the other 
side their correspondents receive money for the bills remittcMl to 
them, and pay it out upon the bills drawn upon them. The 
operation is clearly, as stated, a mode of applying the goods 
sent abroad to payment lor those brought home. 


It is essentially a distinct operation from the home payments. 
The principle in both is the same, and the processes may occa- 
sionally be the same ; but they are not the same thing. It is 
proper that those who export goods should be paid for them, and 
that those who import should pay for their imports. It is the 
same with those who buy and sell at home. In both foreign 
and domestic trade, goods are made to pay for goods ; but when 
goods are exported, they have left the domain of domestic trade, 
and when goods first arrive, they have not yet entered into the 
domestic trade. 

Those who export cotton, flour, and other commodities, are 
drawers of bills of exchange for the proceeds of the sales : the 
importers of foreign goods are purchasers of bills for the cost 
of such goods ; or, if such goods are sent over by the foreign 
merchants or manufacturers, then they are purchasers of bills to 
the amount of their sales. The dealings between these parties, 
and the competition between bankers and brokers who are the 
intermediate agents in this business, govern the rate of ex- 
change. The standard of coinage in each is the basis of the 
rate of exchange between any two countries. Between Great 
Britain and the United States this basis is the quantity of pure 
gold which, in Great Britain, is the equivalent of the pound 
sterling — the unit of the money of account there, and the quan- 
tity of pure gold which here is the equivalent of our dollar of 
account ; or, taking our dollar coin and the British sovereign as 
the points of comparison, what is the price or value of each ex- 
pressed in the money of account of the other. If, for instance, 
our dollar is worth four shillings and two pence in England, 
and a sovereign is worth four dollars and eighty-one cents here, 
the rate of exchange will be founded on this comparison, and 
will depend for its fluctuations upon the supply of bills and the 
demand for them, and upon such other influences as affect the 
l^rice of exchange. A debt in England, although the debtor 
lives here, is expressed there in pounds, shillings and pence, 
the English money of account. Bills on England are expressed 
in English money of account, and must produce, when paid, 


the amount thus expressed ; they are, however, bought and sold 
here at rates cxpresse<l in our money of account.' 

What has been said of the trade between one country and 
anotlier, for the sake of distinctness, is equally applicable to the 
whole foreign commerce of any nation. For by the same pro- 
cess of exchange — of buying bills and selling bills; of receiving 
the proceeds of bills remitted, and paying the amount of bills 
drawn — the exports of one nation to all other nations are used 
to pay wi- the imports of that nation from all others. As the 
number increases, the complication increases ; but the object — the 
principle is the same, and the processes have only become more 
complex. We can readily comprehend how the purchaser of 
exchange upon one country may extend his business to the pur- 
chase of bills upon another, or more countries, or upon all 
countries. The business of the dealer in exchange being thus 
extended, he becomes a seller of all that he buys. In this 
country this dealer may purchase bills on all parts of Europe, 
and establish a correspondence in every city ; or he may remit 
his bills to one house in London, and supply his customers with 
bills on London, which make a good remittance to all other 
places ; or he may establish a house or correspondence in Paris, 
Havre, Hamburg, and Amsterdam, and draw upon all these or 
more points. The mode of adjusting all the payments of the 
foreign trade is that Avhicli all the parties concerned adopt as 
the most economical, rapid and convenient. Sometimes payments 

' The mode of quotinn; exchange on England has absurdly continued the 
same since the act of Congress of March l2d, 1799, regulating the collection 
of duties, whicli then fixed the proportion between the pound sterling and 
the dollar at $4.44 to £1. This, by various changes in the coinage of the 
two countries, is now $4.84-5 to £1 ; but the mode of stating the rate of 
exchange continues to be the same, and quotes the bill for £1000, which 
sells for $4845, at 9^ per cent, above par. This shows how pcrseveringly 
men of business adhere to their modes of computation and expressing 
prices, but in no way affects the real price of exchange. Tliis absurd cus- 
tom should be abandoned, as it adds to complications, and tends to pre- 
vent the uninitiated from comprehending a subject which is ot interest 
to all. 


between particular places arc settled in one way, and sometimes 
in another. He who owes a debt in Amsterdam may remit a 
bill on London, or Hamburg, or Havre, or direct as special in- 
formation or circumstances may dictate ; or a remittance may 
pass through several hands before it reaches its destination. 
The old works on exchange are full of minute and curious 
expositions on the subject of circuitous exchange.^ They re- 
garded skill in this art as the merchant's highest attainment. 
Its whole scope was, however, in not a few respects, better 
understood centuries ago than at the present time. Foreign 
excliange was then comparatively of more importance than at 
this day, when the progress of domestic industry has magnified 
the home trade of civilized countries vastly beyond the foreign 
in value and importance. The busin^ess of the foreign exchange 
is merged now in other vast transactions, and in this way it may 
not enjoy some facilities formerly accorded to it ; and it does 
not stand out so conspicuously as one of the great processes of 
commerce. We have but to revert to the mode in which bills of 
exchange were paid at the fairs of Lyons, '^ and other cities and 
commercial marts, to be made fully sensible how well the subject 
of exchange was understood in past ages, and how skilfully 
the mode of adjustment w^as then adapted to the requirements of 
commerce. At Novi and Placentia, in Italy, for a long period 
previous to the eighteenth century, multitudes of merchants con- 
gregated every three months, for the mere purpose of liquidating 
debts ; very little trade was carried on at the fairs held in 
those places, though vast sums were daily discharged by the pro- 
cess of set-off.^ 

Merged, however, as exchange operations are in a mass of 
great financial, banking and commercial transactions, they may 
be separated and brought very distinctly under survey by a 
little attention to the subject. There is due to every country, 

' A curious diagram may be seen in " Postlethwaite's Dictionary of 
Commerce," illustrating the results of circuitous and complex operations 
in foreign exchange. Art. " Exchange." 

^ As may be seen in the chapter on " Fairs," in this volume. 

^ "Robert's Map of Commerce," folio; London; at "Placentia." 


from all others, a certain amount in the aggregate ; and there is 
due from each country to all others, in the aggregate, a certain 
sum. Whatever may be the processes or the complexity of de- 
tails by Avhich it is effected, it is manifest that, by the use of 
bills of exchange, the amount which is owing to any country 
may be applied to the extinguishment or payment of the debt 
due by that country, so far as it will reach, if not sufficient to 
cover the whole. The object is the same as in the direct ex- 
change between any two countries ; it is that the merchants of 
any country may apply the debts due to them to payment of 
the debts due by them. This is the same operation which is 
effected among individuals by the working of bank deposits, or 
the circulation of bank-notes ; or among the separate districts 
of the same countries by the accounts of banks with each other, 
or by the mutual accounts and correspondence of dealers in do- 
mestic exchange. The operation to be performed, in paying 
foreign debts, may be readily comprehended by supposing that 
each country should send a statement of its claims upon all 
others to a common place of adjustment. From all these state- 
ments a balance-sheet could be framed, showing at one view the 
debts and credits of each, and the balances, favorable or unfa- 
vorable, of each. The Avhole sum of the indebtedness, except 
these balances, could of course be discharged upon this 
balance-sheet. As no such place of adjustment exists, whatever 
mode of payment comes nearest to this simple plan is likely to 
be the most convenient and economical. Bills of exchange are 
certificates or evidences of debt, which fall into the hands of 
dealers in exchange ; and their offices, books of account and 
mutual correspondence throughout the world, arc in the place 
of a clearing house or offi^ce common to all. If all these pay- 
ments could be concentrated in one office, the whole extent of 
the business would be at once perceived and appreciated; the 
amount of the balances to be provided for would be at once 
ascertained ; and measures for payment in the most advanta- 
geous mode could be adopted. As the Avork of adjustment now 
proceeds, however, in a detached manner, by the drawing and 
ci'xulation of bills of exchange, it remains long in doubt how the 


balances will result ; and exchange fluctuates in price, because 
no one can tell what the supply will be in comparison with the 
demand. This fluctuation in the price of bills is a real obstacle 
to the progress of adjustment ; but it is an obstacle not neces- 
sarily belonging to the process of payment. It arises from 
ignorance of facts which are accessible ; from the want of infor- 
mation which is attainable by proper legislation. The mere 
advance in the price of exchange arising from over-importation, 
and a consequent short supply of bills, is no evil, but a whole- 
some regulator of trade. It is a check upon over-trading, a 
damper upon speculation, and thus a benefit to commerce, 
although it interposes a difficulty in such payment. Every 
means should be used to avoid fluctuations arising from uncer- 
tainty, from want of correct information — not those which pro- 
ceed from the greater or less demand or supply of bills. 

The use of bills admits an interchange of commodities to the 
extent of the productive power of nations : the only limitation 
is, that the interchange must be equal. The goods of one must 
pay for the goods of the other ; and so long as this equality is 
regarded, no difficulty can occur in the payment. When the 
equality is violated, and other payment is required than in the 
usual commodities, then difficulty arises, which will be extreme in 
proportion as the inequality is great. The efficiency of bills for 
this mode of setting off debts has been found ample for almost 
every exigency of trade ; they circulate over the widest extent 
of territory, and from one nation to another, and thus save all 
necessity for a general congregation of merchants. The great 
system of payments, by which the exports and imports of a 
nation are balanced against each other, goes on thoroughly 
among merchants widely scattered, Avithout personal communi- 
cation, and without their appreciating the magnitude of the 
transaction of which their individual concerns form a part. 

The examination of tables of exports and imports of the prin- 
cipal commercial countries will reveal at a glance how the 
mutual accounts are balanced by the paper process, and to what 
a small amount, comparatively, is the aid of the precious metals 
brought in requisition. It is true that, in the course of this 


adjustment, in wliich such multitudes scattered over a vast space 
are concerned, many difficulties arise from the varying moneys 
of account, and regulations of the mints, in those countries in 
which the goods are valued, from the monopolizing operations 
of great capitalists, from a spirit of speculation, from a general 
^vant of confidence, from the condition of the currency in the 
countries engaged in the commerce, and from a great variety of 
other causes ; but these impediments are merely the friction of the 
machinery which continues to accomplish the payments of trade. 
The fluctuations in the price of bills of exchange thus employed 
as instruments of adjustment, which attract so much attention, 
and arc so important to certain classes of merchants, are of 
small consequence comparatively ; for Avhen bills are above par, 
the exporter reaps the profit ; and when below p;ir, the importer 
who is the purchaser enjoys the advantage. At least this is 
true, except so far as foreigners have not usurped the business 
of importation. 

The great law of trade upon which exchange is based, is an 
equivalent exchange of commodities : where this fails, exchange 
ceases. Where the debts are equal, the operations of exchange 
will balance them : where the equality ceases exchange stops, 
except so far as it may be prolonged upon the credit of those 
who deal in it, and a further transfer of commodities, or of 
money, must take place. 

^ 3. Fallacy of regarding foreign excliange as a criterion of domcsilc cur- 
rency — Foreign exchange is simply the process of j)ay in g and receiving 
debts of foreign trade — The viedium employed has its proper agency — So 
with the payments (f domestic trade — Neither shoidd guide nor control 
the other — The payments as distinct as the trade to which they belong 
Long-continued adverse foreign exchange of American colonies, and its 

Among the fallacies which have prevailed at various times in 
regard to foreijin cxchano;e, one of the most absurd and most 
dangerous has been, that the rate of foreign exchange furnishes 
a true criterion of the value and (luantity of the interior cur- 
rency. It is, perliaps, not so difficult to imagine how such a 


notion originated, as it is to tell why it has so long maintained 
its sway over intelligent minds ; for it is still defended by states- 
men and authors of high standing in Great Britain. These go 
so far as to contend that the foreign exchange is the true regu- 
lator of the currency of a country ; that money or currency 
should be plenty or scarce, as exchange rules low or high.' This 
is not merely wrong, but it may be asserted that a more unsafe 
and delusive guide for the regulation of a paper currency cannot 
be found. The fact that an exportation of specie consequent upon 
an adverse exchange produces a contraction of currency, and 
other mischiefs, does not prove the rate of the exchange to be the 
rule of currency. The exchange is simply the adjustment, by bills 
of exchange, of the payments arising out of the foreign trade, 
which in many countries does not reach 1 per cent, of the home 
trade, and in none does it reach more than 10 or 12 per cent. The 
payments of the foreign and domestic trade are to be made by 
those engaged in each; and they are wholly distinct: the pay- 
ments of the foreign trade may be larger or less, but each must 
be provided for according to its demands. Over-trading in the 
home trade produces a high rate of interest ; over-trading in 
imports produces a high rate of exchange. The operation of 
adjustment by bills is much more effective, because more concen- 
trated, in the foreign trade than in the domestic; so far as they 
are equivalent, it is setting off" the goods exported against those 
imported, thereby effecting an immense saving of money in 
the mode of payment, none being used except to discharge 
balances. The dealers in exchange may be said to be book- 
keepers of the foreign trade, who charge the goods exported, 
and credit those imported, and only pay or demand money upon 
the balances for or against their own country. In paying these 
balances only is gold or silver used. In the home trade the 
domestic currency is largely used, because this trade is more sub- 
divided, more mingled with the retail ; because no arrangement 
for payment by domestic bills of exchange and promissory notes 
has ever been devised so comprehensive, and yet so simple, as 

' Torren's Letter to Tooke, 1840, page 20. 


the payments by foreign exchange ; and finally, because the 
home trade is of ten times the magnitude of the foreign. To 
carry on the home trade with advantage, a large amount of cur- 
rency is required ; and bank-notes, and the working of bank 
deposits, have been found very effective, economical and conve- 
nient. They are so readily adapted to all the requirements of 
business, that they save a resort to many otherwise necessary 
expedients. The payments in this home trade are thus distinct 
from those of the foreign ; there is no propriety in blending 
them, and still less in making them dependant upon each other, 
or in giving one control over the other. There is no necessity 
that confusion or troulde in the one should produce like results 
in the other. General causes may operate alike on both ; but 
what specially disturbs the payments of the merchant engaged 
in foreign trade should not necessarily disturb the payments of 
the domestic trader, as each class must pay its own debts by 
that mode of adjustment which is most approved. In all this 
we refer not to the ability to meet engagements, but to the 
mere machinery of payment ; and we mean that derangement 
in the machinery of payment used in the foreign trade should 
not, and does not, necessarily derange the payments of domestic 
trade, unless some unwise and needless connection is established 
between them. If the importing merchants of the country 
have, therefore, in competition with foreigners, imported too 
many goods, and they find a short supply of foreign bills to 
make their foreign remittances, that furnishes no sound reason 
why the merchants and manufacturers of the interior should be 
embarrassed in their business, or why they should not be sup- 
plied with the regular quantity of domestic currency which that 
business requires. If the importing merchants find themselves 
under the necessity of taking specie from the banks to complete 
their j)ayments, that should not abridge the facilities of the 
domestic merchant. 

Ilow, then, has it become a doctrine, that the supply of 
domestic currency should be regulated by the state of foreign 
exchange — a doctrine about as well-founded, as that our sup- 
ply of beef at home should be determined by our supply of 


pepper from abroad ? This strange and erroneous opinion 
sprung from another doctrine not less false, but more plausible; 
that foreign exchange is a true index (not of the price, for 
that -would be true, but) of the value of money. Those hold- 
ing this opinion seem to think that whatever value or price we 
may place upon our domestic currency, be that what it may, it 
is brought to an unerring test when it comes to be applied to 
the purchase of a foreign bill : that is, when we Avish to place a 
sum of money in a foreign country, we must necessarily insti- 
tute a strict comparison between our domestic currency and the 
money of the country to which remittance is to be made. This 
is clearly a mistake, when laid down as a general rule ; so, also, 
is an opinion frequently stated in connection with it, that the 
rate of exchange is governed by the plenty or scarcity of 
money. No doubt the supply of money has its influence on 
foreign exchange ; and if all other influences were removed, 
the rate Avould depend on the money market. But that which 
completely destroys both these doctrines is, that the rate of 
foreign exchange depends mainly on the supply of bills, and the 
demand for them.^ This supply depends on the amount of 
goods exported, and the amount to be remitted for goods im- 
ported. These are main elements of the rate of exchange. 
The quantity of goods exported depends on the state of the 
markets throughout the world, and the special intelligence, 
enterprise and activity of those engaged in that trade ; the 
amount of goods imported depends on similar considerations. 
If large exports make bills plenty, they must be sold at a dis- 
count ; if large imports make bills in great demand, they must 
sell at a premium. It is the price of the bill, the paper instru- 
ment of exchange, which fluctuates in proportion to the supply 
and demand ; these variations do not indicate the value of 
money, or its scarcity or plenty ; but they mark the current 
price of the article of remittance." It is tlie bill of exchange 
which, in these cases, is bought and sold, and not the money. 
But this ceases to be the case when the price of bills becomes 

' " Blako on Exchange," page 91. ^ Ibid, pages 32, 33, 60. 


SO enhanced, that the buyers turn their attention from the pur- 
chase of bills to the purchase of coin or bullion. These be- 
coming, then, the special article in demand, at once rise in 
price ; and -whilst under this influence, vary in their market 
value according to the intensity of the demand. Of course the 
intrinsic value of the precious metals undergoes no change cor- 
responding with these variations. The influence and eff"cct are 
special and local. It is well known to experienced merchants 
that, under the operation of a continued demand for the pre- 
cious metals for remittance, they may reach a very high price 
in countries where there is no access to banks compelled to 
deliver them at par. The only check, if the demand continues, 
is the flowing in of the precious metals for the benefit of the 
high price. It is often said that exchange cannot rise higher 
than the cost of remitting the specie ; but this is not true, as a 
general rule, except wliere there are banks bound to furnish 
specie on demand. This opinion only took root in England 
after the establishment of the Bank of England. 

In many cases, where the effect of a continued demand for 
the precious metals for exportation has been most remarkable in 
its influence upon this price, the operation has been masked by 
the destruction of the money of account. Our commercial his- 
tory, previous to the separation from Great Britain, affords 
many apt illustrations.^ A long-continued adverse exchange 
caused gold and silver to be in such constant demand for export 
to England, that the price of exchange, and of coins or bullion, 
ranged for a long time, and in many places, from ,£133 to ^175 
currency for XlOO sterling. This enormous rate was the effect 
of a continued unfavorable exchange. Other causes operated 
simultaneously, in some of the colonies, to break up the moneij 
of account, or establish a depreciation of the colonial currency. 
These were chiefly the abuse of paper issues : thus, in Massa- 
chusetts, the price of exchange reached XllOO for XlOO ; in 
Rhode Island, £2300 for £100 ; and in South Carolina, £700 

' " Hays' Negotiator," p. 221. "American Negotiator," vol. iv. " Pos« 
tlethwaite's Commercial Dictionary," Art. " Currency." 



for iClOO. The price of the Spanish dolhir in Massachusetts, 
in 1740, was sixty shillings ; the sterling price was four shil- 
lings and eight pence. It was not these vast fluctuations which 
produced the results we are about to notice, as they were so 
rapid and extraordinary as to require and to receive legislative 
correction. But the unfavorable exchange and high price of 
the precious metals which prevailed extensively and endured 
for a period of more than half a century, finally broke up 
and changed the money in which all men reckoned and kept 
their accounts. We do not say that this Avas a necessary or 
proper result, but that it Avas inevitable, unless the theory of 
money was better understood, or counteracting measures were 
adopted. When men were first oflered an advance for coins 
— that is, when five shillings began to be ofiered for the dollar, 
that was worth only four shillings and eight pence in England — 
they would readily see that this was an advance in the price of 
coins ; and it would be equally clear, as the price advanced 
gradually to seven shillings for the dollar. But when this price 
remained almost stationary for half a century, the general 
prices of the country would become fixed or arranged on the 
depreciated scale. For a long time it might be that prices 
would be quoted in both ways ; that is, for specie and for cur- 
rency. And so, in fact, they were in every colony ; and every 
purchaser had it iu his selection to pay in specie, in currency, 
or in articles of trade ; and the price was according to the pay- 
ment.^ By degrees the original price of the dollar Avas lost 
sight of in all the dealings in the colonies ; the high price at 
first known to be the result of special demand for exportation, 
or of a high exchange, from long habit came to be regarded as 
the regular price ; and the general range of the rates of commo- 
dities being more commonly quoted in the depreciated scale, 
the latter became established in all minds as the money of 
account. The change of the money of account, or scale of 
reckoning, would be thus complete. It was by this process that 
the pound, shilling and penny sterling became so changed, that 

' " Felt's Massachusetts Currenc}-," page 54. 


the dollars worth from four shillings six pence to four shillings 
eight pence, came to be rated in the colonies at six shillinofs, 
seven shillings six pence, and eight shillings. Thus, in Virginia, 
in Pennsylvania, and in New York, a separate and diiferent 
scale of reckoning Avas adopted : in the first $3 j^^, in the 
second $2^%%, and in the last $2j\"(j, became the equivalent of 
the respective pounds or units of the respective moneys of 
account ; and the prices of all the commodities of trade were 
adjusted and expressed in these several moneys of account, in 
proportion to the value expressed by these units. 

The rate of exchange is, then, strictly applicable to bills of ex- 
change, and only expresses the price of these commercial instru- 
ments of adjustment and remittance; when coin or bullion become 
the cheaper remittance the rate expresses their local price. 
Foreign exchange is no criterion, either of the value of money, 
or of its scarcity or abundance. If money is plenty, when bills 
are in demand, the rate of exchange may go higher; if scarce, 
it may restrict the exchange to a lower point than it would 
reach in a more easy money market. The whole operation of 
foreign exchange, so far as it belongs to commerce, is an affair 
of the foreign merchants : it arises out of their business, it is an 
economical expedient to effect their payments, and is governed 
in its movement by the varying amount of these payments. 


Foreign exchange in its relations ivilh our banks — The export of specie, and 
the contraction of our currency — Resident agents of foreign merchants 
and maniifacturers, and their influence on our foreign exchange and 
domestic currency. 

The fact that, in Great Britain and in the United States, the exportation 
ot gold produces a contraction of the respective currencies, which, if con- 
tinued, results in a commercial crisis, is, as we shall see hereafter, a conse- 
quence of the special constitution of our respective bankinj;; systems. In 
securing the solidity of our banks, and the convertibility of our paper cur- 
rency, we have placed them under the necessity of furnishing to the buyers 
of foreign exchange coins or bullion at par, whenever it becomes their in- 
terest to demand them. It becomes their interest to make such demand 
after every excessive movement in their business. They are chiefly 
foreigners, and are the more apt to over-trade, and over-stock our markets 
with foreign goods, because they are imperfectly acquainted with the wants 
of the people, and the state of our markets. Besides, they are frequently 
forced to flood our markets, because their own are already filled or broken 
down, and they prefer to make forced sales, when they are to be made, 
among us, to making them at home. All such operations, however, must 
create an extraordinary demand for bills of exchange, a rise in their price, 
and a consequent demand for the precious metals, which the banks are 
called upon to supply. Every holder of gold and silver, in such cases, is 
permitted to ask the highest rate he can obtain for them ; but the banks 
cannot advance the price, and must furnish all that is required, at the risk 
of ruin. To save themselves in such emergencies, they must curtail their 
facilities to the domestic trade, until interest among domestic traders rises 
three or four hundred per cent., and the fall of prices has inflicted upon 
the country suffering it a loss of perhaps ten times the whole value of the 
over-importation which caused it. If no other fault existed in our present 
banking system than this, not a moment should be lost in finding a remedy. 
But so false are some of the opinions entertained by writers and public 
men of high standing, both in the United States and in Great Britain, that 
they regard every evil arising from the working of the foreign exchange as 
inevitable. They may be considered as looking at the fluctuations of ex- 
changes as they do at the changes of the weather and the seasons. They 
must be encountered and endured, and all we can do, as they think, in de- 
fence is to look to our clothing and our shelter. They regard the fall in 



prices consequent upon the contraction of the facilities of the home trade, 
althouj^h inflictint; a loss equal to all the specie in the country, as desirable, 
because the low price of j^oods may tempt the exporters of the coin to send 
commodities of trade. They know of but two ways of protecting the banks 
from the extraordinary demands of importing merchants: the one is to 
make the paper-money used chiefly by the domestic trader excessively 
scarce ; and the other, to cause a general fall in prices sufficient to cause 
an increased exportation of goods. If this is not an enormity of mischief 
and absurdity, it will be needless to seek for one. It is crushing a hundred 
thousand to save a hundred ; it is crushing industry to save commerce; it 
is crushing him that makes, to save him that carries ; it is levying ten per 
cent, on three thousand millions of home products, to save the importers 
from paying ten per cent, on three hundred millions of foreign products; 
sacrificing the value of 300 millions, and ruining thousands of men, to save 
a few scores of importing merchants the disadvantage of a high rate of ex- 
change. It is in England that the opinions we controvert are most fre- 
quently asserted ; the act of 1844, in reference to the Bank of England, is 
expressly founded upon such doctrines. It is not to be supposed they will 
be without defenders here, and that our commercial legislation will escape 
the influence of absurdities sustained by such high authority. 

There is another abuse of our foreign exchange which has prevailed of 
late years upon quite a large scale, with results very injurious to the regular 
course of business. The practice originated in the days when sailing 
packets required an average of a month to make a passage to Liverpool, 
and before steamers and telegraphs had lent their aid to commerce, of 
drawing bills upon European correspondents at sixty days, without in- 
terest. Tiiis practice, like that of quoting the pound sterling at $4.44, 
under a law of 1799, is, still absurdly continued. Now, when the mails, 
and parcels, and gold itself, go to Europe in from ten to fifteen days, the 
continuance (jf this long exchange has become a source of positive mischief 
All who are acquainted with the manner in which the importation of 
foreign goods is conducted in the United States, know that it has, in a 
large degree, fiillen into the hands of foreign houses. The ad valorem sys- 
tem of 1846 has contributed mainly to this. There has long been a dispo- 
sition, on the part of foreign manufacturers, merchants and speculators, to 
make our markets the receptacle of the surplus not merely of foreign pro- 
duction, but of all the foreign markets. The temptation was great ^iw two 
grounds: our people were extravagant consumers, and by sending commo- 
dities here they saved their own market from breaking down. When, in ad- 
dition to this, they were made, by the ad valorem appraisement, the valuers 
of their own goods, they had the strongest inducements to sell goods here 
not in active demand at home. Double invoices were freely used and ten- 
dered, not only to merchants, but to all persons bringing goods from Europe. 
This system, however, involved some risks, and occasional serious losses, 


and has been nearly superseded by anotlier system of evasion. The f()roi2;n 
manufacturer now sends here a clerk, or agent, or partner, who becomes 
forthwith an importing merchant. The goods to be imported are invoiced 
to him at cost, without any perjury, or other evasion of law. The goods 
are sold in our market for the highest price which can be obtained ; and 
the whole proceeds, profits and all, less only the expenses of the agent, are 
remitted to the foreign concern in specie, or by bill, according to the state 
of the exchange. This system invites large importations, because the 
foreign manufacturer is virtually the importer; he reaps all the profits, 
and foreign labor is proportionably encouraged. It brings, also, a 
much more formidable and serious competition against our manufac- 
turers, because the goods brought here against them are produced 
where wages, and interest, and many articles of raw materials, are at 
half, or less than half, the rates prevailing here. The sixty day bills 
on Europe are found to be a powerful incentive to this anomalous 
mode of importation. These foreign agents, clerks, or partners become 
sellers of bills of exchange. For this purpose the foreign house to which 
chey belong has only to introduce them properly, and pay promptly the 
bills thus drawn. In this way these houses can raise money in New 
York to any extent necessary, not only for the payment of duties, but also 
to be remitted in the shape of bills purchased, or specie, to their establish- 
ments in Europe, to assist in the manufacture of goods to be sent here. If 
the specie is sent over, the use of the money is thus obtained for some forty 
days without interest, and the operation may be repeated, and a large 
accommodation secured: they find it easier to raise money in the New York 
market, where interest has ruled from seven to ten per cent., than in 
Europe, where it has ruled from three to five per cent. 

We have reason to believe that this process has carried — and if no 
change occurs in our policy, must continue to carry — large quantities of 
the precious metals from the United States. It furnishes a strong motive 
to remit by specie, instead of by bills of exchange ; because the specie, 
when it arrives, is cash in hand, and not a bill with forty days to run. 
Thus we often see gold shipped in large sums, when the state of the ex- 
change scarcely seems to justify it. These foreign houses are so many 
agencies for drawing money from the United States, and transmitting it to 
Europe to aid in building up establishments there, which, without this help 
at our expense, have more than power enough over our industry and our 
laborers. The effect is to raise interest here, and to reduce it there ; to 
disturb our currency, and render their own more safe ; to make our money 
market hard, and their own easy. 

Of all this, it is not difficult to see the mischief, the injury sustained by 
our industry, and by our currency: what is the advantage? AVe have im- 
porting merchants enough to secure us from any want of foreign goods, with- 
out this ample license to foreign houses, manufacturers, and merchants. This 
influx of foreign agencies comes chiefly from France, Germany, and Belgium. 



The faciUly and poicer of bank-notes — Some disadvantages — Properly 
issued in exchange for the business paper of individuals — Converti- 
bility not the basis of the power of bank-notes, hut a security against abuses 
— Inadequacy as such — Distinction between business of banks and the 
restraints imposed upori tliem — Bank-notes a meditim by xvhich the com- 
modities of trade pay for commodities — Great demand for bank-notes by 
the debtors of the banks, the cause and residt — Bank-notes represent value 
of articles of consumption in channels of trade — Received in payment for 
these articles of necessity as freely as specie — Circxdation of efficiency in 
that way — Exchange of between the banks operates like tickets — Proportion 
of bank-notes employed in business decreasing. 

Promissory notes, or bills of exchange, depend for their effect 
in circulation as a medium of payment, upon the credit of the parties 
— drawers, acceptors and indorscrs — whose names are attached. 
Unless these are widely known, their paper cannot have a large 
circulation, as scrutiny and inquiry may have to be made with 
regard to every name. This is a serious check to the circulation 
of such paper. The credit system has furnished, in the shape 
of bank-notes, a very efficient and convenient medium of ex- 
change. A bank with largo capital and good credit furnishes 
its own notes at the regular rate of interest, in exchange for 
those of individuals. The bank-notes being of convenient deno- 
minations, in amounts suited to the ordinary transactions of 
business, large and small, are at once not only more available in 
payments than promissory notes and bills of exchange, but more 
so than coins of silver or gold. It cannot be necessary to enlarge 
upon the facility and efficiency of bank-notes as a medium of 
payment. It is hardly possible to conceive of any medium more 
easy to carry or circulate as a substitute for money. The sub- 



stitution of these in trade for promissory notes, or bills of ex- 
change, proved from the first an immense facility in business. 
But as bank-notes are attended with many difficulties in regard 
to haziird of robbery, of fire, of forgery, and insolvency of 
banks, they do not furnish a satisfactory medium in all respects, 
and leave much to be desired. Whatever facilities there may 
be in their use, so many are the obstacles in the v/ay of shaping 
an adequate banking system, so much difficulty in obtaining 
proper securities against abuses, so much distrust in the public 
mind of institutions having the important power of issuing their 
own notes to be circulated and received as money, that we 
refrain here from entering into these or any similar topics. Our 
object now is only to explain how bank-notes are so effective as 
a means of payment, and how the substitution of the notes of 
banks for the notes of individuals operates. We assume, then, 
for the present, that the notes are issued by safe banks in good 
credit, and doing a legitimate business. 

The proper, safe and legitimate business of a bank of circula- 
tion is to issue its own notes, either in substitution or in ex- 
chiingc for commercial paper, such as the promissory notes and 
bills of exchange of individuals. These may not be sufficiently 
known ; their paper is, for the most part, of unsuitable form and 
amounts, indivisible, and otherwise inconvenient for general cir- 
culation. The notes of a bank, on the other hand, are Avell- 
known, of convenient amount and form ; they are divisible, or 
at least obtainable in any desired denominations, and are other- 
wise convenient for constant use in payment of large or small 
sums. They not only perform all the functions of a currency, 
or circulating medium, which the individual commercial paper, 
for which they are substituted, could perform, but many other 
purposes which it could not ; they become, in fact, not merely a 
substitute for individual paper, but for money itself. It is this 
latter quality which makes the power of issue so dangerous to 
the public, and therefore the subject of so much caution on the 
part of public authorities. It cannot be denied that the power 
of issuing paper-money, for such in cfiect is bank-notes, should 
not be conceded without extraordinary safeguards and precau- 


tlons. Among these, one of the most stringent and effective is 
the liability of redeeming all their issues on demand in gold or 
silver. Even this hns not proved effectual, nor prevented fre- 
quent abuse. It is left to the public to make the demand or not; 
if made, it destroys the system ; if not made, abuses are not 
only possible, but continue to occur. 

But whilst it is almost universally conceded that, with all its 
imperfections, the restraint of specie payments is the most 
reliable and effectual check upon banks of circulation, it must 
not be regarded as the basis of their efficiency or usefulness 
when properly conducted. It is a security to the public for 
their good behavior, a check upon over-action, not a power to 
maintain movements, or give efficiency to movements otherwise 
useless. For twenty years and more, the Bank of England paid 
no specie for its notes ; and the question which arose thereupon 
was not whether the payments of England were not effectually 
made, during that time, in the notes of the bank, but whether 
the bank had not abused its privilege by issuing too many notes. 
So in the United States, during the suspension of specie pay- 
ments, the trade of the country proceeded ; and bank-notes 
were not less employed in current payments, than when redeem- 
able in specie. The validity of these payments, for the time 
being, are not called in question ; but the people of this country 
have never been satisfied that such a power can be safely com- 
mitted to the interested hands of bank directors. The continu- 
ance of specie payments is demanded by them as the best guar- 
antee which can be given by banks of circulation. It being 
important that this distinction be kept in mind by those who 
would understand the true ground of the success of banks of 
circulation, as one of the great devices of the credit system, avc 
have placed it thus broadly before the reader. Let him regard 
the movements of the real business of the bank wholly apart 
from the restraints and responsibilities under which the bank is 
placed to keep it from running astray. 

We recur, then, to the remark, that the proper business of a 
bank of circulation is to issue its own notes in place of the actual 
business paper of iudivivUuils. For the latter accommodation. 


the bank charges interest the same as if it advanced money. We 
pass over the fact at present, that the banks frequently give, in 
place of the notes, merely a credit for the amount of the paper 
discounted on their books, which is to the same eifect as if the 
notes had been received and deposited. The operation of bank 
deposits in payments will come under separate consideration. 
We have explained the process by which a payment is made by 
the negotiation of a promissory note or bill of exchange. The holder 
of such business paper has sold commodities of trade, for which be 
received the paper ; he purchases other commodities, for which 
he pays with this same paper. We have stated that this mode 
of payment is applicable only to a very small range of business, 
and that its inconveniences led probably to a larger employment 
of the more convenient and effective medium of bank-notes. If 
the holder of a promissory note, or bill of exchange, Avho gave 
commodities for it, desires to purchase other commodities for the 
amount or a part of it, he may exchange it for the notes of a 
bank. If, with these bank-notes, he purchases other commodi- 
ties, or pays debts for commodities already purchased, it is ob- 
vious that he, in substance, exchanges the articles for which he 
receives the promissory note for those which he purchases with 
the bank-notes. Thus these paper promises, whether the notes 
of banks or of individuals, furnish a medium by which men ex- 
change what they have for what they want. It matters not, to 
men of business, how the final adjustment or discharge of these 
bank-notes and individual notes is effected, so that they thereby 
make what they sell pay for what they purchase. It will come 
in our way to explain fully how this paper adjustment takes 
place; how this immense amount of bank-notes payable on de- 
mand, and these individual notes payable in a few months, all in 
gold or silver, arc all fully paid, discharged and retired without 
the use of one per cent, of the amount in the precious metals. 
As this explanation involves other processes not yet touched, we 
reserve it for a future page, merely insisting here on the supe- 
riority of bank-notes, as a medium of exchange, to the business 
notes of individuals. 

The debtors to banks of circulation in any commercial com- 


munity are under a strong necessity of promptly meeting their 
engagements : no more imperative motive can be brought to bear 
upon them than that of preserving their credit, and continuing 
their business. Ruin, bankruptcy and utter discredit stare 
ever}' man in the face Avho falters in the performance of his 
engagements. Every energy, every effort is put forth for this 
purpose ; no sacrifice of means, of time, of skill, of mental 
activity, or watchful anxiety, is spared to accomplish punctually 
the payment of every liability as it matures. This, then, creates 
a demand for the bank-notes, of proportionate intensity. There 
are goods offering for sale by those who have debts to pay, 
■which nmst at all hazards be paid ; and these goods must be 
fully equal in value to the sum of the debts to be paid, because 
the debts were created by the purchase of the goods : of course, 
the necessity of realizing in the bank-notes, or what is equiva- 
lent, will compel the sellers to be reasonable in their demands. 
All this merchandise is, therefore, not only applicable to the 
purpose, but all the holders who are debtors to the bank are so 
many agents actively employed in the redemption of the bank- 
notes. It is this imperative demand for the bank-notes, and 
this extreme necessity of meeting bank liabilities, which sustains 
so amply the value of the notes of all well-managed banks. A man 
may reduce his expenses for food and clothing, and wait many 
days for the gold and silver which he is accustomed to pay for 
these necessaries ; but he cannot postpone a day the payment 
of his note in bank : there is no one article, then, so indispens- 
able to those who are indebted in banks as bank-notes, or their 
equivalent. The notes issued by banks, in discount of commer- 
cial paper, must correspond as the paper discounted does to the 
value of the goods for wliich it was given. It would require all 
the bank-notes thus issued to purchase the goods, the sale of 
which created the paper in exchange for which the bank-notes 
were given. The goods are sufficient to redeem the notes issued 
upon them, and therefore sufficient to pay or redeem the bank- 
notes substituted. Apart from the artificial securities required 
of banks, this is the real basis of bank-notes. They are issued 
in exchange for individual notes, which are given for the pur- 


chase of merchandise ; the sale of this merchandise produces the 
means to redeem the individual notes, or the bank-notes. It is 
this feature \Yhich gives banks of circulation their firmest sup- 
port. In any commercial communit\' where such banks abound, 
they hold a very large proportion of the notes given for mer- 
chandise, and that merchandise must be the virtual basis on 
which their issues rest ; the holders of merchandise of all descrip- 
tions, to suit the demands of necessity or luxury, oflier it us freely 
for the bank-notes as they would for gold or silver, because the 
bank-notes will pay their debts as effectually as anything else 

Tlie summary of this process of payment is, that merchants 
purchase goods, and manufacturers purchase supplies, with their 
individual notes or bills, which are exchanged for bank-notes ; 
and these bank-notes are either sought after and obtained by 
the debtors of the bank, to be returned in payment of their 
liabilities, or they pay the bank in some medium which will 
redeem the notes. The goods sold create the paper discounted, 
and sold again they furnish the means to withdraw the paper 
discounted, and the issues of the bank : or, more generally, the 
continual operation of trade constantly originates new paper, 
and thence new issues from the banks, which furnish the 
medium in which the individual paper is continually paid. The 
manufacturer, merchant and farmer purchase stock in one period 
of the year, for which they give their notes, which the holders 
convert into bank-notes. In another period they sell and create 
paper, which is applied to meet their engagements. Thus goods 
are bought and sold, or produced and sold, until the distribution 
is complete, and merchant and producer have received and 
issued paper until it is evident, in the regular routine of their 
business, that it supplies the means of its continuance. Every 
such business man, in the course of a year, issues his own notes 
to a certain amount ; ho receives, also, the notes of others to a 
certain amount ; he requires some facility to set-off the notes he 
receives against those lie has given. The bank furnishes that 
facility in several Avays. The debtor cannot directly exchange 
the individual notes issued to him for those he issues, but he can 


convert those he receives into bank-notes, which will be received 
in payment for, or exchange for his paper. The bank gives 
nothing but bank-notes, or bank credits, for the paper it dis- 
counts ; it requires nothing for payment but bank credits, or 
bank-notes. The debtor does not obtain this facility without pay- 
ing for it ; he must purchase the bank-notes, and he docs this 
not with money or coins necessarily, but with business paper 
received, perhaps, for the very goods by purchase of which his 
debt was created. It is thus that the whole body of debtors to 
the bank are competitors, with all the merchandise in their pos- 
session, for the bank-notes in circulation which furnish such a 
convenient mode of discharging their liabilities. The bank- 
notes so much in request by the debtors become equally in 
request by the whole body of consumers who use, employ or 
consume the goods held and offered for sale by this Avhole body 
of debtors. Coins and bullion are received in exchange for 
these same goods, simply because of their intrinsic value ; but 
as these will go no further, in payment of debts, than the bank- 
notes, the latter are employed ahnost exclusively in countries 
where banks of circulation are found. 

This operation of payment is entirely independent of the pre- 
cious metals ; their presence or agency is not in the least need- 
ful ; they liave no part in the transaction. We are not speaking 
of banking as regulated by law, but merely explaining the pro- 
cess of liquidation, as effected by bank-notes. The usefulness 
of bank notes as a medium of payment is not confined to the 
mere process of liquidation above specified ; their efficiency in 
aid of commerce is, perhaps, greatest by their perfect facility of 
circulation. In practice they do not pass immediately into the 
hands of the debtors of the bank, and from them into the bank 
in payment or liquidation of the notes discounted. They circu- 
late tlirough every channel of trade with a rapidity of movement 
wholly unattainable by any possible circulation of coins. They 
are dispersed, by the thousand varieties of expenditure among 
all classes <>f the community, to the whole mass of the people in 
such proportions its the course of trade, salaries, wages, fees, 
and otiier modes of income and expenditure, may bring about ; 


all take tliem freely in payment, simply because they knoAV they 
will be as freely received. The only question is, will they pass? 
Whilst they are performing all this movement, the demand for 
them by the debtors of the bank, which is urgent and imperious, 
is operating with incessant and anxious vigor to obtain the quan- 
tity of bank-notes necessary to meet their daily maturing engage- 
ments. As these engagements, in the first instances, gave origin 
to the issues of the bank, the amount in circulation is just the 
amount required. The demand for them is, therefore, equiva- 
lent to the whole quantity extant. So long as this demand con- 
tinues, bank-notes must keep their value, as they are in demand 
to pay the same amount for which they were issued. 

The process by which bank-notes, in themselves of no intrinsic 
value, effect a payment in this circulation is the same as that 
which gives efficiency to a payment made by negotiating pro- 
missory notes. The miller who sells a lot of flour for bank- 
notes, and with the same notes purchases wheat, has exchanged 
his flour for wheat. The merchant who sells goods for bank- 
notes, and with those notes purchases other goods, has in fact 
merely changed one lot of goods for another. Thus the bank- 
notes are a mere medium of exchange. They are received for 
what is sold only because they will be received for what is pur- 
chased. It is not even the solvency of tlie bank, nor the fact 
of its redeeming its notes in gold or silver, which gives efficacy 
to such circulation of notes. The real character of the notes 
employed in any transaction can seldom be known to the 
receiver ; they may even be spurious, yet the validity of the 
exchange will be the same. He that sells iron for bank-notes, 
and with the notes purchases flour, has exchanged his iron for 
flour, let what may be the character of the notes. To make the 
transaction complete, it is only necessary that the party receiv- 
ing the notes for iron should know that they will be received 
without hesitation for flour. Whatever may be the real value 
or character of the bank-notes, so long as the parties exchanging 
merchandise continue to make them the medium, so long will 
their commerce proceed without hindrance. The exchange of 
goods, in any particular instance, could not indeed be more 


effectual if, instead of notes, gold itself had been used. We do 
not allege that the medium is a matter of indifference, nor 
recommend that worthless rags should be employed for that pur- 
pose ; but we show that it is not the genuineness of the notes, 
nor their convertibility, nor the solvency of their issuers, that 
gives validity to the sales of which they are the medium. What 
is necessary to be done to secure the confidence of the public in 
bank-notes, so that they may the better perform the functions 
we have described, and prevent the abuse of over-issues by the 
banks, is matter of separate consideration. 

The view which we desire to present here is simply that the 
exchange of the iron for the flour is not essentially dependent 
on the actual goodness of the notes used as a medium. The iron 
may be sold for a promissory note, and that note given for the 
flour ; or, the iron merchant may simply charge the flour mer- 
chant in his books for the value of the iron, and be charged him- 
self for the flour ; and when these books are settled and balanced, 
the reciprocal payment will be as effectual as if gold, or silver, 
or bank-notes, or any other medium had been employed. 

In one aspect of this circulation of bank-notes they operate 
like counters or tickets ; they are issued in discount of paper 
given for goods, they are carried to the vicinity of banks, and 
paid for goods to persons who deposit them in bank, receiving a 
credit on the books instead ; the banks receiving each other's 
notes, exchange them, and being thus acquitted of each other, 
they owe only to their depositors, and this indebtedness to the 
depositors is li(|uidatcd by the deposits being used to pay and 
withdraw the discounted paper. This is the channel in which a 
vast portion of the bank-notes run ; but they are not confined to 
this course, and therefore run into a thousand channels, ever 
varying with the diversities of trade, and the schemes and whims 
of men. 

But useful and efficient as bank-notes are in various ways, one 
of which — the saving in the wear of coin — Ave have not men- 
tioned, there is a limit to their power ; or, rather, other modes 
of payment have been devised and extensively employed, of 
superior eflSciency. We find that the circulation of bank-notes 


in Gre;it Britain, and in this country, has kept pace neither 
with the increase of banks, nor with the immense enlargement 
of business. The circulation of notes by the Bank of England 
reached, for the first time, the sum of twenty millions sterling in 
1806. Ill 1817 it reached twenty-nine and a half millions ; but 
for the whole period the average is but little, if any, above 
twenty millions. This is remarkable, if the immense progress 
of Great Britain in commerce, agriculture and manufactures be 
taken into account. It cannot be doubted that, if bank-notes 
were employed now as in 1806 and in 1817, it would require 
forty millions from the Bank of England. The circulation of 
1856 averaged about twenty millions. The act of 1844, which 
was restrictive of the issue of notes, may have tended to keep 
down the circulation ; but the average circulation of the ten 
years preceding 1844 was considerably under twenty mil- 
lions. It is obvious, from this, that the proportion of bank- 
notes employed in Great Britain is decreasing, and has been 
for fifty years. A comparison of bank returns, in this country, 
for the last twenty-five years, will exhibit a similar result. As 
the payments occurring in the business of Great Britain have 
increased in proportion to the population and productive indus- 
try of that country, which have nearly doubled, it is evident 
that other modes of payment or adjustment have, to a largo ex^ 
tent, taken the place of bank-notes. That which has been most 
extensively employed, and which, to the greatest extent, sup- 
planted the circulation of bank-notes in Great Britain, and in 
the United States, is bank credits, which operate under the 
name of bank deposits. A very large proportion of the indi- 
vidual paper of men of business, in the United States, is dis- 
counted by the banks without taking the form of bank-notes, or 
being included in the circulation of the banks. The proc3eds of 
the discounted paper are merely placed to the credit of the 
party, and take their place as deposits. This form of credit 
will be next considered.' 

' The efficacy nnd power of bank-notes as a currency will 1)e further dwelt 
upon in the Chapters upon the Bank of England and the banks ol' the 
United States. 



A greater facilitij than hank-notes needful for large operations — Banks 
become the reservoir of all currency not in actual use for retail trade — 
Tliis constitutes the great fund employed in large payments — The credits 
form the fund out of which debts are paid — Each depositor employs his 
own credits to pay his oivn debts — All the credits ivill pay all the debts — 
Tlie deposits are virtually a system of accounts kept by the banks for their 
customers — Indebtedness of business chiefly mutual, and settled by set-off 
— Demand for deposits — Circulation — Absorbed by the banks in pay- 
ments of discounted paper — The banks give credits on their books for 
paper, and receive those credits in 2>aynient. 

The concentration of payments at the great centres or entre- 
pots of commerce enables the hanks to afford another facility of 
payment far more effective and important than bank-notes. In 
the large payments incessantly going on at these points, count- 
iner bank-notes would be considered a serious obstruction to busi- 
ness ; and keeping them on hand for constant use -would bo 
regarded as a needless risk, burden and expense. At such 
places merchants and others keep open running accounts with 
one or more banks, depositing bank-notes and money as fast as 
received to the credit of their accounts; thus making the banks 
the receptacle or reservoir of all the currency and money not in 
actual use for the operations of retail trade. The banks, in this 
■way, absorb a very large portion of all the currency in circula- 
tion. These deposits in the principal cities greatly exceed in 
amount the circulation of the banks, and their operation or 
working is far more efficient and active than that of the bank- 
notes. One effect is not only to return to the banks immediately 
all the notes not required for circulation, but to save the issue 
of immense sums. When individual paper is discounted, the 
16 . (--^1) 


applicant, instead of receiving bank-notes, takes credit for the 
proceeds in his deposit account, and draws upon this account to 
meet his maturing payments. The paper discounted is daily 
falling due, and being paid by checks drawn by the debtors on 
their bank account. The banks are constantly discounting 
newly-offered paper, thus keeping up the accounts of the depo- 
sitors. While these accounts are continually used up and extin- 
guished on one side, they are continually renewed and extended 
at the other. It is but to a very small extent, probably not one 
per cent, of their amount, that deposits are made in gold or 
silver ; they consist in part of bank-notes absorbed from the cir- 
culation, but chiefly of credits granted upon the discount of com- 
mercial paper. The credits thus granted give the option to take 
bank-notes, if required ; and they serve not only to pay debts 
at the bank at which the account is kept, but at other banks in 
the vicinity. This of course leads to large transactions among 
the banks. Individuals find their liabilities scattered through 
many banks, all which are paid by checks on the bank in which 
their account is kept, or by bank-notes taken up by check for 
that purpose. Thus all the discounted paper, and all individual 
notes deposited with the bank for collection, are paid by the 
working of these deposits ; the bank is paid in its own notes, in 
a check on itself, by charging the debtor in account, or in the 
notes of or a check upon another bank. Men of business who keep 
accounts in bank, are creditor and debtor during the year to nearly 
the whole extent of their business. They give their individual paper 
as evidence of debt in their purchases : they take paper from 
others for the amount of their sales. The banks discount the 
paper they take, and demand payment of the paper they gave. 
The bunks, in effect, keep a set of books of account for their cus- 
tomers, in which they are credited for what is due them from 
others, and debited for the amount of their debts. The conve- 
nience and advantage of these books may be better understood 
if we notice that the bank does not merely give its customer a 
credit for the amount of a bill or note, engaging to return the 
same bill or note on demand, or the amount when collected. It 
gives an open credit, which enables the customer to draw as 


occasion requires for any sum, large or small, within the amount 
of the credit. In this shape the credits of a customer become 
perfectly manageable and applicable to the payment of his debts 
as they mature and are presented. What is done for one, is 
done for all. The whole amount of the commercial or iu'lividual 
paper discounted at the banks is susceptible of being employed 
in this very effective way. The banks become so many reser- 
voirs of the means of commercial liquidation. Notes and bills 
merely lodged for safe-keeping or collection Avould afford nc 
advantage to be compared with the actual process. By the 
mode adopted, the whole proceeds of all the commercial paper 
discounted is constituted a fund, which being drawn upon as 
required by checks, becomes more convenient and effective than 
money in discharge of debts. By a single check, the work of a 
moment, any sum can be instantly paid with its minutest frac- 
tion. That which, however, gives real foundation and continuous 
efficiency to this rapid and easy mode of payment, is. that this 
great fund mainly belongs to those who are, in fact, creditors and 
debtors of each other. Each individual is both creditor and 
debtor; and the chief care of each is so to manage his credits 
as to make them available in discharge of his debts. This depo- 
sit fund is a vast facility for this purpose ; it is a safe and good 
fund for those who use it, because it safely and finally dis- 
charges their debts. Gold and silver can do no more. If a 
merchant owes $100,000 in various sums, upon promissory 
notes, to divers persons, and if various persons owe him 
$110,000 upon notes given to him, he can in no way be more 
safely or legitimately accommodated than by being enabled to 
apply $100,000 of what is owing to him in discharge of the 
$100,000 he owes. For this purpose it is obviously not neces- 
sary that the amounts to be thus employed should be converted, 
or even be convertible into money. The banks merely convert 
it into a fund, upon which the parties concerned can draw. If 
a merchant, therefore, who has $110,000 to his credit in bank, 
draws upon this fund for $100,000, and applies it in payment 
of that amount of debt, he is debited the amount, and his debt 
is acquitted. The fund for payments thus furnished on the 


])ook-5 of the bank is continually replenished by constant streams 
of fresh business paper, and constantly drawn off and diminished 
by the amount of debts paid. Its effect is to enable the cus- 
tomers of the banks to set-off their credits against debts "vvith more 
or less facility, according to the varied circumstances of each 

Tiie business or commercial paper of a community is thus con- 
verted, not into money, but into a fund, the amount of which 
and all the dealings in it are expressed in money of account. All 
are willing to receive payment of what is due to them in this 
fund, because with it each one can pay what he owes to others. 
No more acceptable medium of payment can be found or pro- 
duced than that which will pay debts ; for, among civilized 
people, there is no necessity of business more imperious than 
the payment of debts. No one Avill trouble himself to exact pay- 
ment of what is due to him in gold or silver, if he can pay the 
debt he owes by a check on a banker. No individual can desire 
a greater facility for payment of his debts than that of applying 
to that purpose the debts which others owe to him. This involves 
no employment of the precious metals. The money of account, 
in which all amounts are expressed, is common to creditors and 
debtors, and understood by both. What one person can do, in 
applying his credits to his debts, any number can do. Thus 
the credits become the fund out of which the debts are paid ; 
but as the operating parties are mainly both debtors and 
creditors, the whole payment is a mere process of adjustment by 
which those concerned balance their accounts. It is quite possi- 
ble, theoretically, to bring the mutual claims of all these persons 
into a series of accounts with each other in one book, and thus 
balance them, without checks or money, or any so-called deposit. 
The banks keep open accounts with each other, which daily 
exhibit the operation of these payments. The bank upon 
which its customers have draAvn most largely, whether in notes 
or checks, will fall in debt to the others accordingly ; but each 
will be able to present claims upon the others in proportion to 
the am.ount it has received in checks upon them or their notes. 
Each will be found to stand, in regard to the others, a debtor 


and creditor. These amounts arc adjusted every day, once in 
two or three days, or as convenience may dictate : each one has 
a balance, favorable or unfavorable, with every other ; and when 
their accounts are settled, the whole of these mutual claims, 
except the balances, are paid and forever extinguished. Banks 
keeping such mutual accounts soon learn the course of trade, 
and are able to regulate their business with reference to this 
mutual indebtedness, so that the balances fluctuate but little, 
and the amounts to be paid on settlement will rarely exceed five 
per cent, of the sum paid off. In each bank the same process 
goes on between individual depositors as among the banks. So 
far as there are mutual claims among those keeping accounts at 
the same bank, they will be settled, however complicated, by 
the working of the deposit account. Each customer of a bank 
is not only creditor and debtor in certain amounts, with refer- 
ence to his whole business, but he is debtor and creditor in cer- 
tain amounts with other customers of the same bank. So far 
as this mutual indebtedness may exist between the customers of 
the same bank, their debts will be paid by check on the bank, 
and what one account gains another loses — the deposits are 
neither increased nor diminished. The bank is continually 
granting credits, which go to swell the sum of its deposits ; and 
it is continually receiving payments in these credits, which ex- 
tiniruishes so much as is thus received. As banks receive their 
own notes in payment of all dues to them, so to the same effect 
they receive the checks on themselves of any of their depositors. 
The deposit is very rarely of coin or bullion, or other article of 
intrinsic value ; its circulating value arises from the fact that, 
like bank-notes, it will make purchases, and pay debts. We have 
seen that the demand for bank-notes to meet bank engagements, 
and others as pressing, is stimulated by a necessity the most in- 
exorable — the necessity, among merchants, of punctuality in 
their payments. To efiect their payments, merchants spare no 
anxieties, labors, nor sacrifices. This is the practical and most 
powerful support of the issues of banks of circulation ; and it 
applies as strongly to the deposits or credits granted in that 
shape, as to the notes of a bank — the deposits being far more 


employed in paying debts than bank-notes. A man may refrain 
from incurring; expenses, to pay which the bank-notes are 
usually employed ; but he cannot refrain from paying his debts, 
even when he neither notes nor deposits, unless he is ready 
to suffer bankruptcy. The checks upon these deposits are, 
therefore, as good payment as the bank-notes, not because they 
are, like them, convertible into gold or silver, but because they 
are, like them, receivable in payment of debts. Nearly the 
whole of the large purchases of commerce are made upon pro- 
mises of payment at a future day ; whatever is receivable for 
these payments must be, for the occasion, as desirable as gold 
or silver ; for these can make no more effectual payment, and 
are far less convenient and safe. 

The bank deposits are the grand receptacle of all the funds 
not needed for immediate use, and of the large sums required 
for the heavier payments of trade. Being composed chiefly of 
credits granted upon the discount of commercial paper, they do 
not spring from gold or silver, they do not turn into gold or 
silver, they do not represent gold or silver : if they may be said 
to represent anything, it is the value of the merchandise, the 
sale of which upon credit has given existence to the mass of both 
bank-notes and bank credits. The operation of deposits is, like 
that of bank-notes, both direct and circuitous. The gold or silver 
^Avhich is deposited in banks to credit of him who transfers his 
ownership by check continues thus to circulate, until the amount 
or the equivalent is withdrawn or paid to the bank. So the 
credits granted upon discount of individual notes may be trans- 
ferred without limit from one to another, each time making a 
payment, until absorbed by the constantly recurring demand of 
the bank upon its customers. Nine-tenths of the amount of the 
deposits in our banks consist of their own notes, and of the 
credits granted as above ; yet all blend into one common mass, 
and effect the same results as if the whole deposit had been gold 
or silver. 

The successful operation of this most efficient of all the means 
of payment is not dependent upon the actual employment of the 
precious metals, coins or bullion. It neither excludes nor 


requires them. A merchant -who pays, in this ^Yay, to the 
amount of half a million yearly, may not, altogether, have depo- 
sited a thousand in coins. The amount to his credit is constantly 
growing by receipts, as well as diminishing by payments. The 
result at which he aims, and which he effects, is to apply, in the 
progress of his business, the proceeds of his sales to the payment 
of his purchases ; to set-off his credits against his debts. Where 
the creditor and debtor are depositors in different banks, the 
debts are paid with equal facility, their payments merely leaving 
matter for adjustment between the several banks. If we sup- 
pose that all the business men of Philadelphia had deposit 
accounts in the Bank of North America, when it was the only 
bank in that city, the adjustments of all would have been com- 
pleted on the books of that bank. Each depositor would have 
to pay a certain amount to others in that city, and others in 
that city would have to pay a certain amount to him : each depo- 
sitor could have drawn upon his account for money deposited, 
and for the jsroceeds of notes discounted, in payment of his 
debts as they matured- If we suppose that, Avhilst this was the 
only bank in the city, there were 1000 persons who were thus 
creditors to, at least, the average amount of $10,000 each, and 
debtors to at least the same sum ; and that there were 100 per- 
sons who were each, in like manner, creditor and debtor to at 
least the sum of $100,000 ; and that there were 10 persons 
each, in like manner, indebted $200,000 : the sum of this in- 
debtedness would be $41,000,000 : if this amount were run off 
three times in a year, it would make a total of $132,000,000, or 
$11,000,000 for each month. Whatever course might be taken 
in regard to the suras or balances owing beyond this mutual in- 
debtedness, nothing else would be necessary for the extinguish- 
ment of tills large sum of $11,000,000 each month than draw- 
ing and receiving checks, with corresponding entries on the 
books of the bank. Thus would be extinguished the individual 
paper discounted by the bank, corresponding Avith the commer- 
cial transactions which had given rise to it. For goods received 
the depositors had issued their notes, and for goods delivered 
they had received notes ; and all these had been discounted by 


the bank, and converted into a fund available for the payment 
of all, because it would be of the very same nature as the debts 
it Avould be employed to pay. The bank which would have pur- 
chased all these notes merely Avith credits on its books, would 
receive these credits in payment when the period of maturity 
arrived. We may attain, perhaps, a more distinct idea of the 
effect of the deposit system of payment, if we suppose the mer- 
chants in a city without banks to have adopted a mode of pay- 
ment or adjustment of this kind. Having opened an office, and 
appointed their agents for its management, they deposited, in- 
stead of money or bank-notes, simply their business paper, notes, 
and bills of exchange, receiving credit for the amount in the 
books of the office, less the interest till maturity. A fund would 
be thus constituted of all the commercial paper of the city. 
When a note or bill matured, the debtor or payer would simply 
draw his check for the amount to be paid, and thus reduce the 
sum of his credit so much. If the party paying had not credit 
on the books to a sufficient amount, he would either borrow from 
those who had, or pay the deficiency in money. It will be noted 
that, by this mode of adjustment, the sum applicable for pay- 
ment would exactly correspond to the amount of the credits 
granted, less the interest or discount, which would have to be 
paid in money, or be otherwise arranged. The money paid in 
by those whose credits were unequal to their debts would go to 
those whose credits exceeded their debts ; and the money paid 
in as interest, or as the difference between the proceeds of a note 
and its face, or nominal amount, would belong to the office. 
Thus this business would close and balance as soon as all the 
paper matured ; or it might be continued at pleasure, the new 
credits being granted according to the regular progress of 

We have supposed deposits thus created to be only used in 
payment of the paper which gave rise to them ; but they might 
be employed for other payments. The demand for them to pay 
the paper on which they were founded would be urgent, and 
would proceed from the holders of the goods, the purchase of 
which gave origin to the paper deposited ; and yet there might 


be intervals, whilst the paper was maturing, in which these depo- 
sits could be freely circulated as a currency, by means of checks, 
throughout a whole commercial community. Their value would 
be undoubted, because the demand by those under the absolute 
necessity of obtaining them would ensure their commanding at 
all times, in any article of trade, their nominal value. These 
credits would, therefore, circulate just as the deposits of a bank 
circulate ; for if the debtors in these deposit accounts should 
fail to secure the amount of deposit required to meet their 
engagements, they must pay in money, and thus furnish the 
fund to repay the credits or deposits when demanded by those 
into whose hands the circulation may have carried them. 

A very efficient circulation of deposits might be originated 
and kept up on this plan, upon the basis of commercial paper, 
continually discharged by payment, and renewed by fresh sup- 
plies. To the extent of the direct adjustment or set-off of debts 
between the parties to such an arrangement — that is, not in- 
cluding the circulation of which we have just spoken — the whole 
result may be attained by simply opening an account at a suit- 
able office, and charging each accountant with all the notes and 
bills he is bound to pay, and crediting him with all he produces 
against others. This would be a direct set-off of each one's 
credits against his debts, and an exhibit of balances showing 
what sum each one had to receive or pay. The whole of the 
equal indebtedness would be extinguished at once, and the amount 
to be paid on the debtors, balances would be exactly equal to the 
amount to be received, so that these balances paid in would dis- 
charge the whole. The course of trade shows that, in any mer- 
cantile community, these balances range between five and ten per 
cent. ; so that, in adjusting an indebtedness of a million, the 
sum of the balances would range between fifty and a hundred 
thousand. In the working of the actual deposit accounts of our 
banks, it is rare that these balances are all withdrawn from 
bank ; they are, in part, lent by tlie holders to the debtors to 
meet their deficiencies; or, being allowed to remain, tiieir accumu- 
lation enables the bank to extend accommodations to those whose 
balances are unfavorable. In process of a fcAv months, the 


balances greatly change ; many of the debtors and creditors 
change places. The system of adjustment just supposed might 
be continued from month to month, or year to year, the opera- 
tion of the book entries being sufficient to effect the payments 
through any number of fluctuations. 

The main result of the deposit system, as now managed by 
our banks, is a mode of keeping the accounts of persons who 
have large mutual transactions. This will be more apparent, if 
we suppose another mode of accomplishing the same payments. 
Let each one who makes a sale of merchandise charge the pur- 
chaser with the amount; and when he makes a purchase, let him 
credit the seller with the amount. If an abstract from all the 
books of those who would otherwise be the depositors were fur- 
nished for the purpose, an account could be stated with each 
person, showing all his transactions, exhibiting the resulting 
balances and the amount extinguished among the whole. The 
promissory notes and bills of exchange usually employed are 
evidences of debt arising upon sales of merchandise or other 
transactions ; the abstract of entries above supposed would fur- 
nish evidence of the same debts, susceptible of payment in the 
same way. 

The actual system of payment now in use in the most commer- 
cial nations is that the business of trade — that is, the sales and 
transfers of merchandise — proceed among merchants according 
to their convenience, and their opinions of what will best meet 
the demands of consumers, and promote their own interests. 
This process of distribution by the merchant to the consumer is 
based mainly upon the confidence of merchants in each other. 
The goods are delivered at once — the payment is deferred. 
The goods proceed by a thousand channels to their final desti- 
nation — the Avhole business of payment is reserved to bo sepa- 
rately accomplished. These payments are eftected by the em- 
ployment of separate agencies, professions, institutions and hosts 
of men ; as well as by the aid of books of account, promissory 
notes, bills of exchange, bank-notes, bank deposits, and gold 
and silver. In this system sometimes one way is best, and some- 
times another ; sometimes one agency or agent, and sometimes 


another ; sometimes notes, sometimes checks, sometimes gold, 
and sometimes silver. All these are but various means of attain- 
ing an end. The usage is always to employ the easiest and 
least expensive mode that will be effectual. It happens rarely, 
perhaps, that the parties paying have their choice of all the 
various modes of payment ; they can choose only among the 
facilities which may be offered, or may be within their reach. 

Looking at the whole process of payment in any commercial 
country, it presents a mass of details, and a complication of pro- 
cedure, which defies the hand of analysis, or the eye that would 
pierce through the whole. It cannot be understood nor described 
by any direct examination : various attempts to do this have 
failed, as the innumerable treatises upon money and banking 
amply prove. Our object has been to show distinctly the end 
to be accomplished ; to exhibit clearly the most effective pro- 
cesses of payment ; to show how they operate singly, and in 
various combinations ; and to leave each reader to follow these 
processes as far and as faithfully as his facilities for informa- 
tion, and his powers of observation, may carry him. 



21. Tlie Clearing-Tioiise of London — Private hankers of London — Con- 
centration of payments — Mutual adjustment — Clearing-house — Mutuality 
of debts — Processes and forms at the Clearing-house — Example of clear- 
ing — Amounts cleared — Bullion Report of 1810 — Sir Henry Thornton 
— Relations of clearing to commerce — Tlie Banks and their customers — 
Payments of foreign trade — Domestic paytnenfs of special districts — The 
Credit System — Keiv channels for the precious metals. 

The vast accumulation of payments in London led the pri- 
vate bankers, in "whose hands the business, or a large proportion 
of the business "was concentrated, to adopt a plan for economi- 
zing the use of bank-notes, for saving time and trouble, which 
may fairly claim to be one of the highest exhibitions of the 
power of the credit system. The country merchants and bankers 
who made and received their payments in the metropolis, kept 
their accounts Avith these private bankers, many of whom had 
thus committed to their keeping very large sums of money. A 
great average balance remained in their hands, the use of which 
was one of their principal sources of profit. As no firm with 
more than six partners was allowed to issue bank-notes in Lon- 
don, these bankers never felt themselves able to compete with 
the Bank of England in that department of banking : issuing 
no notes of their own, they used only those of the Bank of 
England, when their payments required the use of notes. They 
all kept accounts with their customers, and immense sums were 
daily paid by checks and transfers on their books. They paid 
out, Avhcn required, for these checks the notes of the Bank of 
England ; and were, of course, obliged to keep a supply con- 
stantly on hand for that purpose. These bankers, besides having 



to pay out bank-notes on the order of their customers, found 
themselves daily indebted to each other in immense sums accru- 
ing from tlie system of concentration which has been noted. 
Each banker was daily receiving from his country correspond- 
ents drafts and bills for collection and discount, payable at the 
counters of other bankers ; and all "were thus daily subjected to 
heavy demands from each for the amounts of these drafts and 

These mutual demands were greatly increased by the checks 
and bills and drafts of city customers : so that, each afternoon, 
every banker was called upon to disburse large sums of bank- 
notes to every other banker. Payments were to be made and 
received between more than forty banking establishments ; and 
this process necessarily involved the daily use of very great sums 
in bank-notes, or the keeping a heavy deposit account with the 
Bank of England. This would have required, if notes were 
used, a large proportion of the actual circulation of the bank ; 
and, of course, that these bankers should keep this large amount 
in that disposable form which would prevent their making any 
profit upon it. Under such circumstances, it is not surprising 
that the active mindd of the bankers recurred to the mode of 
payment which Ave are about to describe. It is not now my pur- 
pose to examine the steps by which they perfected the institu- 
tion of the Clearing-house, but only to exhibit its uses and 
powers, as a means of payment or li(|uidation, as managed in 
the state of perfection to which it has been now brought. 

Every man who purchases and sells, who receives payments 
and makes payments, finds at the end of the year a balance for 
or against himself on the whole year's transactions, small, how- 
ever, in comparison with the sum of all his dealings. If lie takes 
credit for all his purchases, and gives it on all his sales, he may 
apply his credits to his debts, and thus extinguish both ; and 
that would be perfectly practicable, if his purchases and sales 
are made with the same person. It would be only balancing 
their books of account. If he deals, however, with a great many 
diflferent persons, i)oth in purchasing and selling, and gives and 
iakes credit in every transaction, he has only to call in his 


credits, and with the proceeds pay his debts ; but this is imprac- 
ticable in the complications of business, unless bj means of cir- 
culating credits, such as bills of exchange, promissory notes, 
deposit accounts, and bank-notes. The concentration of pay- 
ments at London arose out of this mutual interchange. Very 
large sums were to be paid daily, and these daily payments 
were an adjustment of the accounts between parties who had 
been both buyers and sellers. One class of merchants have 
large sums coming to them, but they owe heavy amounts to 
others ; hence an immense accumulation of mutual demands. If 
all these had met at one banker's, a very large proportion would 
have been extinguished at once upon his books. Each banker, 
however, being for the time owner of all committed to his care, 
the process of adjustment was modified. All mutual claims 
meeting upon each banker's books were extinguished there, and 
the bankers became creditors and debtors of each other for all 
the credits and debts of their customers which had not met and 
been settled by the parties, creditor and debtor, being customers 
of the same bank ; and this very large indebtedness was that 
which was intended to be adjusted and paid at the Clearing- 
house. Its mode of liquidation, however, deserves more par- 
ticular mention. 

In the old post-office building in Lombard-street, London, is, 
or was, an apartment devoted to the business of the Clearing- 
house. This establishment is kept up for the benefit, and at the 
expense, of certain private bankers in the metropolis, who are 
associated for that purpose. As the institution implies a very 
considerable degree of mutual confidence, ic consists only of 
such as have chosen to enter into the mutual arrangement.^ 
Two inspectors are appointed to preside over the process, to pre- 
vent mistakes, and to authorize the payment of balances. Each 
banker has his drawer or box in the clearing-house, and each 
one or more clerks, who carry thither, at several stated hours 
on every day, all the claims which his house, up to that time. 

' It has recently admitted into its circle many institutions formerly ex- 
cluded, especially the joint-stock banks. 


has on all the rest. The respective clerks, after charging them 
on their balance-sheets, drop into the drawers of each house all 
the claims upon it. This process is continued until four o'clock 
in the afternoon. Then each clerk finishes a balance-sheet, 
which he had commenced and carried on as the claims were 
deposited. They are provided with alphabetical printed lists of 
the clearing bankers, with columns ruled for debtor on the left, 
and creditor on the right side. Each clerk puts the name of his 
own house at the top of his sheet, which exhibits, when finished, 
the balance which his house owes to others, and what others owe 
to it. The summing up at the foot of the debtor side shows how 
much his house owes altogether, and that on the creditor side 
how much all owe to it ; and the balance between these totals 
shows how much his house is to pay or to receive. This amount 
each clerk is enabled to make up by a constant inspection of the 
drawer of his house, where he finds the claims against it as they 
come in. Every bill or check has the name of the banker or 
firm to which it belongs written across its face, thus indicating 
to whom the amount must be credited. They keep a minute of 
the claims upon every house as they deposit the evidences in the 
drawers, and thus are enabled to make a balance with each, and 
transfer it to their balance-sheet, by the hour of four o'clock, 
when no further entries are permitted. They then compare their 
balances, which must agree, or there is error. If there is a 
balance due by one house to another, it must, if right, be the 
very sum which that house claims. 

After their balance-sheets are all made up and verified by 
comparison, the inspectors make up from them a general balance- 
sheet, by debiting each bank with all it owes, and crediting it 
with all the others owe to it. The balance to be paid by each 
bank is placed on the same line with what it owes, in a column 
on the debtor si<le : the balance to be received by each bank is 
placed on the same line with its credits on the creditor side. 
This general balance-sheet further verifies tlie individual balance- 
sheets, as, if all is correct, the sum of the debtor and creditor 
columns will be e(iual, and the sum of the balances to be received 
and [)aid will be equal. It will show at a glance, too, what each 



creditor bank is to receive, and each debtor bank to pay. "We 
subjoin a specimen of the general balance-sheets, omitting frac- 
tions. In the " Supplement to the Report on Banks of Issue," 
made in 1841, may be found, at page 320, a table of the daily 
payments at the Clearing-house for every day of the year 1839. 
The balances paid in bank-notes for that year averaged about 
seven per cent, of the whole sum paid. 





Balances to be 


Balances to be 

























































































The balances being all compared and found to agree, each house 
pays at once into the clearing-house the general balance which 
it owes ; and as the whole sum to be paid must be precisely the 
sum to be received, any one who owes may pay to any one who 
is to receive. The sums thus paid are acquitted in notes of the 
Bank of England, except the fractions of balances under five 


Mr. Thomas, one of the inspectors of the clearing-house, stated 
before the bullion committee, in 1810, that the average pay- 
ments effected daily in the establishment amounted to £4,700,000, 
and that the average daily amount of bank-notes required to 
pay the balances was ,£220,000, but sometimes the balances 
were equal to £500,000. On settling days at the stock ex- 
change, the amount of payments at the clearing-house were 
stated to reach X14,000,000. If we take the former sum, 
£4,700,000 (§22,500,000), as the amount more strictly belong- 
ing to commerce, we have a Aveekly payment of $135,000,000, 
a monthly payment of $586,000,000, and a yearly payment of 
$7,040,000,000; and all this cifected with the use of less than 
five per cent, of the amount in bank-notes. The Clearing-house 
had then been in operation for thirty-five years, and during the 
twelve years before 1810, the immense payments above indicated 
had been made without the use of gold or silver, or any metallic 
money of any kind, and by the aid, for payment of balances, of 
bank-notes not redeemable in coin ; of bank-notes not redeem- 
able in anything, and only receivable at the bank whence they 
were issued in payment of debts, or on deposit. All these great 
payments were in addition to those effected at the Bank of Eng- 
land, at the counters of the private bankers, and by the aid of 
bank-notes out of doors in the current payments of trade, and 
those made on account of the public treasury. It is probable 
that, in the year 1810, these together exceeded the amount 
acquitted at the clearing-house many times ; perhaps not less 
than $75,000,000 were then daily paid in London without the 
use of gold or silver, or bank-notes exchangeable for these 

The business of the Cleai-ing-house has not, we believe, in- 
creased in proportion with the increase of the general business 
of England. The deposits of the Bank of England now gene- 
rally average £20,000,000. If these deposits were moved on 
the average once in each week, which is not a violent presump- 
tion, as immense sums change hands several times in a day, 
this would make the payments at the bank over £1,040,000,000 
for the year. It is, perhaps, e(iually safe to say that, in all other 


banks, an equal movement of deposits takes place in the current 
payments of business ; the two sums making the vast amount of 
^£2,080,000,000. This added to the yearly payments of the 
Clearing-house, makes a total of .£3,000,000,000, equal to 
$1,440,000,000,000. The working of the deposits in Scotland 
and Ireland would greatly increase this vast aggregate. 

The Clearing-house had not been the subject of much remark 
until the Bullion Committee of 1810 examined one of its in- 
spectors, and devoted a half-page (see page 252) of their report 
to a statement of his evidence. It has since been noticed by not 
a few continental writers of repute, and also by many in Great 
Britain. Previous to that time Henry Thornton, Esq., had 
spoken of the establishment in a note near the end of the third 
chapter of his very excellent work on '•''Paper Credit'' in which, 
after a few remarks explaining its mode of operation, he says : 
" This device, which serves to spare the use of bank-notes, may 
suggest the practicability of a great variety of contrivances for 
sparing the use of gold, to which men having confidence in each 
other would naturally resort, if we could suppose bank paper 
to be abolished." 

How strange, that he who so well understood how and why 
'paper credit was substituted for gold and silver in commerce, 
did not perceive and appreciate more fully the fact that the 
Cle;iring-house was an institution founded on the necessity of 
saving, besides time and trouble, not merely gold, but even cur- 
rency. Bank-notes, although a vastly more convenient medium 
of payment than even gold coin, were yet not to be had without 
an equivalent in value ; and it became, in the estimation of 
bankers and merchants, important to save the use of them. 
They were an expensive article to keep on hand, and it became 
needful to ascertain how far they could be dispensed with in 

It is far too confined a view of the operations of the Clearing* 
house to regard them as a mere adjustment between the bankers 
concerned. The banks no doubt lend their own capital as far as 
it goes ;■ but their chief business is dealing in the commercial 
paper of their customers. Every man of business using credit 


largely finds himself, in its progress, creditor for the paper he 
takes, and debtor for the paper he gives. If these credits and 
debts were compared once a month, once in three months, or 
once a year, there would be found, perhaps, no largo balance 
either way. When such a person sends all his credits to a bank, 
it is chiefly that he may obtain facilities, in managing these 
credits, to make them available in paying debts. He appears, 
therefore, on the books of the bank in which he keeps his 
account, as a creditor for the amount others owe him ; but those 
who are his creditors for the amount of the paper issued by him 
have also their accounts in the same bank, or in others. Each 
individual is able, by these open accounts, in the manner already 
explained in the chapter on deposits, to apply his credits to the 
payment of his debts as they mature. If all kept their accounts 
in the same bank, the credits and debits of all would appear on 
the same books, and the clearing would be done on these books. 
But as there are many banks, and the customers divided among 
them, the banks resort to the expedient of the Clearing-house, 
which makes them one for the very purpose of which we arc 
speaking. The claims presented by each bank at the office of 
the Clearing-house are merely the claims of its customers ; but 
these customers arc met, at the Clearing-house, with all the claims 
against them maturing on that day. Thus, every day, the vast 
multitude of business men who are customers of these clearing 
banks have, by the operation of this clearing process, their debts 
and credits balanced and extinguished as effectually as though 
they had met in the same bank, and on the same books. 

By this process the customers of the banks, although they do 
not pay the notes or paper issued or accepted by them until it 
matures, are enabled, by the facility aff'orded by the banks, 
to anticipate the maturity of the paper which is payable to them. 
The parties keeping accounts with one of these banks, and 
having their notes on time discounted, have a fund upon which 
to draw to meet their payments as they mature. They draw 
upon the deposit fund — the proceeds of discounted paper — foi 
the amount of these payments, and the bank takes up the ma- 
tured paper as it appears at the Clearing-house. The bank is 


reimbursed -when the discounted paper is paid in money, or by 
the return of the credit it ii;avc for the paper. As all these 
banks are engaged in the same business, and as their customers, 
whether country banks or individuals, remain very much the 
same, the result of the whole is that this machinery of banks 
and bank accounts, and the processes of the Clearing-house, 
enable their customers one and all to apply their credits to pay 
their debts, without the intervention of money. To the extent 
that their customers' credits and debts are equal, they can be 
paid and extinguished by liquidation, or set-off, in the manner 
we have described ; but so far as any individual has more coming 
to him than he owes, or owes more than he has coming to him, 
so far a balance Avould arise to be settled in money or bank- 
notes. Of course the sums to be thus paid would together be 
the very amounts to be received ; and the sum of the balances 
thus due from individuals would be the amount of bank-notes to 
go each day to the creditor banks. The amount of the daily clear- 
ing, then, exhibits the amount to which the mutual claims of all the 
customers of the banks are equal ; and the sum of all the daily 
balances is the sura of the amounts payable to certain customers 
of the banks, and the sum of the amounts which certain other 
customers have to pay. These balances are the only amount which 
is payable in money at the Clearing-house, and for this payment 
notes of the Bank of England are always employed. In the year 
183'J, according to a Parliamentary Report of 1841, the whole 
amount of the clearings was £954,401,600, or over X3,000,000 
for each day ; the Avhole sum of the balances for the year was 
£66,275,600. The highest sum cleared in any month Avas 
£87,610,500 in August, and the lowest £70,8-33,800 in Decem- 
ber. The largest sum of balances was £6,348,500 in January, 
and the smallest £4,755,000 in December. Thus, for the year 
1839, the customers of the Clearing-house paid off debts among 
themselves to the amount of £954,401,600, a sum far exceeding 
the national debt of Great Britain, without any use of gold or 
silver, and with only £66,276,600 in notes of the Bank of Eng- 
land. To the extent of £888,125,000, the debts of these par- 
ties were mutual and equal, and the operations of their bank 


accounts balanced and extinguished them ; and to that extent 
commodities had paid for commodities. The eifect M'as the same 
as if the same parties had kept the whole accounts on their 
own books of account, and had balanced them as occasion re- 

This clearing operation among the banks is, then, one of the 
most eifective of the various devices of the credit system to 
economize the use of money : for this vast amount of debt, 
equal to $4,500,000,000, was paid in a year without the use of 
a single coin. So far as the Clearing-house operations extend, the 
result is nearly complete. It is effected through more compli- 
cations than are absolutely necessary, but the great f:ict is mani- 
fest, that a sum equal to the national debt of Great Britain has 
been paid, without employing in that payment one pennyworth 
of gold or silver. This result has been reached by a very simple 
principle — the making provision for men to apply their credits 
to the payment of their debts. Unassisted — that is, v.ithout 
some special arrangement for the purpose — men cannot set-off 
their credits against their debts; but with proper management, 
it can be done with even more facility than through the London 
bankers and the Clearing-house. As two men mutually indebted 
upon book accounts can balance and extinguish their debts, so 
two men, holders of each other's promissory notes or accept- 
ances, can, so far as they may be equal, off-set them and thereby 
extinguish so much debt; so two banks, mutually indebted upon 
the notes of each held by the other, can pay and discharge their 
respective debts to each other ; so can any number of individuals 
or banks. It is simply needful that persons indebted be pro- 
vided with a mode of applying their credits to the payment of 
their debts. This process is susceptible of great variety in the 
means, and of very wide application. It is upon this principle 
that the payments of foreign trade have long been effected. If 
the United States and Great Britain have mutually exported to 
each other commodities to the value of $100,000,000, the amount 
is adjusted by the familiar process of bills of exchange. He 
who has exported commodities to the value of $10,000, is paid 
when he sells a bill for the amount. The adjustment proceeds 


afterwards without any further trouble on his part. Tlie bills 
arc concentrated in a few hands in each country. If a house 
in London purchase in each week a million of dollars of Ameri- 
can paper, and a house in New York with which it is in business 
relations purchases a million of dollars each week in bills on 
London, it is easy to sec that it requires no money to pay to 
each other the two millions. As business is generally conducted, 
the bills are forwarded from this covmtry, and the respective 
claims are balanced and extinguished on the books of the Lon- 
don house. 

What is thus done so readily between nations is effected with 
equal facility between the different parts of the same country, 
wherever there is a mutual trade. It takes place in the United 
States between North and South, and East and West, and be- 
tween our chief commercial and manufacturing cities, to a total 
amount probably five times greater than the sum of our foreign 
trade. This great sum, so far as it is equal, is balanced by the 
processes of our domestic exchange on the books of our banks 
and brokers. Coin is only used where there are large balances 
to pay, as in the foreign trade. The large payments of the 
United States in a year greatly exceed $10,000,000,000, and 
the balances paid in coin would not ordinarily reach one per 
cent, of that sum. 

The credit system has thus accomplished the great result of 
separating the actual sale and delivery of commodities — the 
actual transactions of commerce from the payments. The pro- 
gress of civilization and private integrity have made this possi- 
ble ; its immense advantage is such as not only to secure its con- 
tinuance, but to make it a very strong safeguard of commercial 
honesty. Almost the entire commerce, foreign and domestic, of 
the whole civilized world is now carried on from day to day, and 
year to year, with much less, we believe, than one per cent, of 
the actual values exchanged in coin or bullion. The whole of 
the prices, sales, bargains, books of account, notes, and bills of 
exchange, are expressed in money of account ; and the whole 
processes of adjustment by bankers, brokers, and clearing- 
houses, are all stated and expressed in money of account. 


The credit system, then, intervenes with its various devices 
of books of account, promissory notes, bills of exchange, bank- 
notes, bank deposits, clearing-houses, &c., to enable the parties 
who have bought :ind sold, who are all creditors and all debtors, 
to liquidate their debts and credits, and thus extinguish them so 
far as they are equal ; that is, -where a merchant has to receive, 
during the year, $200,000, and to pay $190,000, the credit sys- 
tem adjusts the whole sum of $390,000 by paying the $10,000 
difference in money, and extinguishing the $380,000 by set-off, 
or liquidation. The goods which go out of the manufactory or 
warehouse pay for those which come in. The difference only re- 
quires money. To effect the exchange with advantage, laborers, 
horses, warehouses, wagons, drays, canal-boats, railways, and 
ships are employed ; to effect the payments, gold and silver for 
the balances, bills of exchange, promissory notes, bank-notes, 
banks, bankers, and all the devices of books, checks, and clear- 
ing or balancing accounts, are requisite. 

The economy of these means of making payments is scarce 
less than that enjoyed b}^ commerce in the means of transporta- 
tion above mentioned. To make the daily payments of the 
clearing-houses in gold would require some three or four hun- 
dred tellers ; in silver, an army of some thousands, with a vast 
number of drays, carts and laborers for its removal. The cost 
of keeping on hand such a quantity of the precious metals would 
be enormous for the interest alone, besides all the extra expense 
of tellers, clerks, and assistants. To gave this, the machinery of 
credit is put in motion, and payments are effected as we have 
described. What a nation imports, it pays for by what it ex- 
ports ; what a district receives for its consumption, it pays for 
by what it furnishes for the consumption of others ; and what 
an individual merchant purchases in the Avay of his business, lie 
pays for by what he sells in the way of his business. ^\ lien 
coined money is used in these transactions, they can only be 
carried on to the extent that such money can be obtained for the 
purpose, and with that speed at which money may be made to 
circulate ; but when credit in its various forms is used, then this 
business finds no limit but the limit of human industry in pro- 


ducing, and human power in transportation and distribution, 
and human integrity in the subsequent processes of payment. 

Such, however, is the magnitude of the ti-ansactions of modern 
commerce, that fuller employment is given to a much larger 
stock of the precious metals, in paying occasional balances, than 
•was formerly given when a large proportion of the payments 
were made in coin or bullion. So full is this employment, that 
it may be said that all the commercial business which is now 
done without the aid of the precious metals in the payments, is 
so much of an addition to what would be done if they were ex- 
clusively employed. 

There cannot be a doubt that new modes of economizing 
money Avill yet be devised, and that the power of the credit sys- 
tem will continue to be enlarged, and its processes perfected, until 
much of the friction which is now felt in the business of pay- 
ments will be removed. We may hereafter indicate a method 
of effecting some beneficial improvements in that respect. 

It is true that the credit system is not without its difficulties 
and obstructions; its contrivances have not always been happy; 
its devices have not always been successful ; and the needless 
friction is sometimes terrible. That, however, is less the fault 
of the credit system than of those who undertake to point out 
its laws, and to manage its concerns. It is demonstrable as 
any problem in mathematics, that if men were as honest as they 
should be, and as knowing as they might be, a commerce greater 
than the Avorld has ever seen might be carried on by the sole 
use of well-devised and well-managed institutions of credit. 

We have, however, to regard the subject in its connections 
with men as we find them now, and as they are likely always to 
remain ; and while imperfection and selfishness are such striking 
characteristics of humanity, we shall find them displayed in their 
Avorst forms in the management of property and credit. The 
machinery of the credit system can only be so far perfected as 
the interests of those who employ it Avill permit. 


§2. Clearinrj heticeen the hanks of Scotland — Clearing iioice a tceek — 
Balances payable in exchequer bills, notes of the Bank of England, or gold 
— Banks of Scotland — Their system of dejwsit, and its influence upon 
business — Stijnuhis to punctuality and industry — Circidation of bank- 
notes in Scotland — One pound notes. 

The banks of Scotland have a -well-organizecl system of clear 
ing, or exchanges, among themselves, Avhich takes phice twice 
a week alternately, at the Bank of Scotland and the Royal 
Bank in P^dinburgh. The payments are made in exchequer bills, 
Bank of England notes, or gold, at the option of the payer; but 
if these are wanting, in drafts on London at ten days. Exche- 
quer bills are chiefly used, the Bank of England notes being 
only used to pay the fractional parts of XIOOO. The sum of 
j£400,000, in exchequer bills, is apportioned among the nine 
banks associated ; and it is agreed that this whole sum shall be 
kept in the circle, by each one keeping up its proportion of the 
allotted amount. The process of clearing is simply charging on 
the clearing-books each bank with its own debts, and crediting; 
it with its own credits. Each has a large amount to pay, and a 
large amount to receive, and a balance to pay or receive. This 
clearing includes not only all the mutual claims arising among 
the banks, by drafts, collection of bills of exchange and promis- 
sory notes, deposit receipts, and checks, but also the claims 
arising to each bank upon the notes of the others received in the 
course of business.' The clearing and payment of the balances 
completely adjusts all claims twice in each week ; the whole mu- 
tual indebtedness, however, of the Scotch banks does not enter 
into this clearing. The banks in any one town or city generally 
settle among themselves, and give four days' drafts on Edinburgh 
for the balances which are adjusted at the clearing. This sys- 
tem of clearing is by no means perfect, but it is scrupulously 
well-managed, and made a most important feature in the wisely- 
conducted banking system of Scotland. There is no country 
where there is more reliance upon banks, and none where they 
have more powerfully stimulated the productive forces of the 

* II. Report of 1841, Banks of Issue, Intcrrop;atory, 1G83. 


people. We cannot but remark, tliat whilst there are strong 
objections to the theory of the Scotch banks, their coitstitution 
secures a very safe and prudent management. In fact, they 
have been conducted for a century and a half with almost un- 
equ.illed discretion and success.' 

The working of the deposits of the Scotch banks is probably 
not exceeded in efficiency by any equal amount of deposits, and 
the amount is probably greater than elsewhere in proportion to 
the capital of the banks. The system of cash credits, one of the 
chief characteristics of their banking, consists virtually in giving 
to their customers a certain amount of deposit, upon which they 
draw at pleasure, and upon the operations of which an interest 
account is kept. The customer is thus deeply interested to return 
the amounts drawn by him with as little delay as possible ; and 
the movements of the deposit accounts are, consequently, rapid. 
The banks in Scotland regulate the amount of these cash credits 
by the actual business of the country, and by the effect upon 
their circulation. The bank which perceives increasing indebted- 
ness to other banks, or a great reduction of deposits, is warned 
to contract operations. So, if the banks collectively find, by 
their accounts at the clearing, that their general indebtedness is 
swelling beyond their usual means of payment, they are warned 
that their customers are over-trading. Whilst the people of 
Scotland are trading strictly among themselves, and within due 
bounds, their payments must be susceptible of easy adjustment 
upon the books of the banks by the circulation of bank-notes, 
the settlements between banks, and the Edinburgh exchanges. 
In a wholesome state of trade or production, merchants and pro- 
ducers sell to an amount as great as they purchase: the amount 
they have to pay is no greater than they have to receive. The 
bank or cash credits are used in the purchase of goods, which, 
being sold, furnish the means of repayment. There is no over- 
trading, financially speaking, among individuals, so long as their 

' Since tlie above was written, a must unhappy case of bank failure has 
occurred at Glasgow. But Scotland has less to answer for, in the way of 
bank frauds, than any country in the world which has derived so much 
advantage from banks. 


sales are equivalent to their purchases ; and the payments to be 
made through the banks, in such a business, will create no undue 
indebtedness among the banks. There is, in like manner, no 
difficulty in the payments of any city or district, so long as its 
business furnishes claims upon others equivalent to those -which 
are presented against it. If Scotland exports to an amount 
equal to her imports, there will be no inconvenient payments to 
be made in London to cover a deficiency. So long as the trade 
between individuals, districts or cities and Scotland, and between 
the rest of the world and Scotland, runs nearly even, the banks 
find their adjustments easy and safe. The safety and efficiency 
of the Scotch system of banking consists in its exliibiting to its 
managers the real state of trade, and in its showing clearly the 
relation between the course of trade and the operations of the 
banks. The books of the banks keep the accounts of the whole 
trade of Scotland ; each bank represents so many individuals as 
are its customers, and so far as its customers have mutual deal- 
ings with each other, their mutual claims meet and are settled 
upon the books of the bank ; and so far as the claims of its cus- 
tomers lie against those who are customers of other banks, it 
must present those claims against the bank at which they be- 
come payable. So that, in fact, the goods are moved and dis- 
tributed, and bought and sold in the regular course of trade, as 
best subserves the interests and wishes of those concerned ; the 
payments are made in the banks by that process of adjustment 
to which we have adverted. The friction of this machinery of 
payment is so little, that the progress of industry and produc- 
tion in Scotland, under its favoring assistance, has, during the 
last century, had no parallel in Europe. 

It is a striking feature of the Scotch system, that it not only 
dispenses with the precious metals to a remarkable degree, as a 
matter of economy and facility, but also of bank-notes to a very 
great extent, as other facilities can be found which arc superior. 
It is estimated that the ordinary deposits in the banks in Scot- 
land amount to £30,000,000. If the whole sum is moved but 
once each week, it effects the enormous sum of >£1, 560,000,000 
of payments in a year. The whole bank-note circulation of 


Scotland seldom exceeds £3,500,000, or only one -ninth of the 
deposits ; whilst the circulation of the Bank of England is gene- 
rally larger than its deposits. The superiority of the Scotch 
system is fully shown in this double economy of coin and notes. 
That this economy is the result of their system of management 
is apparent from the fact that banking is free, and that there 
was no restriction upon the issue of notes until the Act of 1844, 
which onl}^ restricted them to the amount shown to be required 
by their business on the average of several years. 

In England, coins are used for payments below £5 ; in Scot- 
land, £1 notes form over two-thirds of their currency ; and yet, 
in Scotland, the whole circulation of notes is not greater, in pro- 
portion to the population, than in England. It is now not far 
from one pound to each person ; but if XI notes were issued in 
England, it is believed that £30,000,000 would be quickly taken 
into the circulation, which would make two pounds to each per- 
son. It is rather rare to see gold coins in Scotland ; their £1 
notes almost supply the place of sovereigns. That the people 
are, in this respect, well satisfied is apparent from the steady 
determination with which they defend their one-pound currency 
against the jealous attacks of English currency-mongers.' 

■ See the celebrated letters of Walter Scott, on the currency of Scotland, 
under the riO)n du guerre of Malachi Malagrowther ; II. Report of 1841, 
Bauka of Issue, Appendix. 


^ 3. Bank adjustment in the United States — Clearing between the banks 
in the United States — Mutual accounts and correspondence — Separation 
of sale and distribution of goods from payments — Doviestic exchange — • 
Balances of home trade — The correspondents of banks their mode of clear- 
ing — Mutual debts the basis of this adjustment — The system of clearing 
among the banks of New England at the Suffolk Bank of Boston. 

In the United States, the clearing or liquidation among the 
banks of all mutual claims, except those arising from their circu- 
lation, is mainly accomplished on their ledgers, and by their cor- 
respondence.' There is a constant necessity for this corre- 
spondence, arising from the mutual transmission of drafts, 
checks, promissory notes, bills of exchange, &c., for collection. 
Upon these collections a large portion of their mutual demands 
arise. It cannot be necessary to particularize that every city or 
district of country, as a whole, must have claims upon others, 
and must, as a whole, be indebted to others. These mutual de- 
mands are entrusted to the banks for collection ; or, what is the 
same in the view now taken, these claims are purchased by the 
banks, and collected for their own account. In this country 
these payments are made through tlic agency of the banks 
almost wholly ; for, when exchange brokers and merchants inter- 
vene in the business, they generally employ the banks in some 
stage of the process. In this way the payments arising upon 
the trade between the East and the West, the North and the 
South, and among the great cities on the seaboard, are made 
upon the books of the banks. Whatever sum is received for 
account of any bank by another, is credited accordingly, and 
whatever is drawn for is charged; so every transaction of debtor 
and creditor is made an item of book account, which runs on 
from year to year, being balanced as often as necessary to make 
out the balance-sheet, or state of the bank. So far as the respec- 
tive charges and credits balance each other, their mutual in- 
debtedness is paid, and the claims held by the customers of the 

' Since this w;is written, clearing-houses have been established in Phila- 
delphia and New York, of which some notice will be taken in the Chapter 
on the Banks of the United States. 


one bank against the customers of tlie otlicr are discharged. 
The effect is the same as if the accounts had been kept directly 
between them ; the bank has acted ;is their book-keeper. This 
adjustment, however, among banks has a wider and more com- 
plex operation, as carried on among a number of banks. One 
bank may have on its books accounts with one hundred other 
bunks, and each of the hundred may have accourits with as many 
other banks. These circles of banks keeping mutual accounts 
may be ramified over the whole country, running from the far 
North to the extreme South, and from the East to the far West. 
The operation is the same in affording a facility to every creditor 
to present his claim against his debtor through the banks, and 
to every debtor to make payment in the same way. The banks 
in this business may be taken as representing the locality in 
which they are severally situated, and as holding the credits or 
claims of their customers upon iill, however distant, with whom 
they dealt : so they respectively stand ready to receive, from 
their immediate customers, whatever they owe to all others. 
This is the domestic exchange of the country. The goods have, 
by the action of merchants and others, been bought, sold, and 
distributed according to the course of trade, and the demands 
of consumption ; the payments arc reserved for the agency of 
banks or bankers. Each locality, or commercial district, is cre- 
ditor for what it has sent into the market, and a debtor for what 
it has purchased. The commercial pnpcr to which this commerce 
has o-lven rise is remitted to the banks, and thus every bank 
will take credits for the exports of its district, and apply those 
credits to meet the claims upon that district for its imports. 
These domestic payments are, then, effected upon the books 
of the bank, as already stated ; and as such accounts must con- 
tinue to run, even the balances may remain to be adjusted, from 
time to time, according to the course of trade, and the corre- 
sponding course of payments. These balances may be trans- 
ferred to any part of the United States by mutual checks, drafts, 
&c , among the banks ; so that a vast adjustment of balances must 
take idace among the banks, besides the accounts to which the 
immediate transactions of their customers give I'ise. 


This adjustment is readily accomplished by mutual checks, if 
the trade has been sound and equal ; if not, it may be necessary, 
at some point, to pay ultimate balances in coin. The banks in 
the West may fall largely in debt to those of the East for goods 
purchased for Western consumption ; but that debt may be paid 
by drafts of the banks of New Orleans upon the Eastern banks 
the market of New Orleans being that at which a large portion 
of the customers of the Western banks make their chief sales. 
So the banks of other districts may become indebted in heavy 
balances to other baidvs ; but they can meet this indebtedness 
by large credits to Avhich they may be entitled elsewhere. 

The result of these bank accounts, and the correspondence by 
which they are kept up, is the same as if they all had a common 
clearing-office, at which eacli should be debited and credited 
with all they had to pay, and all they had to receive. Each 
bank account would then be similar to the clearing accounts of 
each bunker at the office in London. The effect of the whole 
proceeding in our banks is, that the liquidation of the domestic 
exchanges — the payments resulting from the domestic trade — 
is accomplished on the bank ledgers, and the balances are dis- 
tributed according as the parties are entitled. It will be noted 
that, taking the whole of any series of transactions, the amount 
to be paid is the same as that to be received ; tliey are, of 
course, equal. The balances, however, result differently at dif- 
ferent times: and there is a continual transfer of funds takin<T 
place, by Avhich balances are paid by one party at one time, and 
received by the same, perhaps, at another. So far, however, as 
in this business the banks have as much to receive as to pa}', 
their credits arc equal to their debits ; and their books suffice to 
effectuate a mutual discliarge between them, and a final lifpiida- 
tion among their respective customers. 

The banks also keep large deposits with each other, as their 
position and the nature of the trade among their customers may 
require. It is, therefore, found to be an advantage for some 
banks to make actual deposits with others, for which they are 
credited in account as for sums collected or received in any 
other way. They also draw and are drawn upon by each other, 


both for their own adjustments, and at the instance of indi- 
viduals ; all which goes to their respective accounts, and to 
swell the sum of the domestic exchanges liquidated on the books 
of the banks. The advantage and facility of this mode of adjust- 
ment is greatly increased by other modes of operating between 
banks at a distance, by which remittances to remote points are 
made easy and prompt. 

It is by these, and similar means, that the payments arising 
upon the commercial operation of distributing to their proper 
customers the cotton, sugar, and other products of the South — 
the pork, beef, tobacco, and others of the West — the manufac- 
tured fabrics of the North — and the various articles, manu- 
factured and imported, of the cities of the seaboard, are achieved. 
These payments are effected neither by gold, nor silver, nor 
bank-notes. The goods are made to pay for the goods. Money 
of any kind is not only unnecessary in such operations, but an 
actual and serious impediment and hindrance. The larger pay- 
ments are thus made, and with the more facility, because the 
number engaged is smaller ; as the business of distribution 
widens, and more persons take part, it becomes necessary, under 
the present system, to make use of bank-notes, and occasionally 
of coins. 

A system of exchanges prevails among the banks of New 
England, which may be cited as another illustration of the opera- 
tion of clearing. It is too frequently regarded as merely a mode, 
on the part of the banks, of redeeming that portion of their cir- 
culation which accumulates at Boston. It is, however, a more 
important arrangement than such a description suggests. Boston 
being the chief centre of trade for these States, a very large 
portion of the bank-notes flow into the banks of that city ; and 
it is a great convenience to have these notes redeemed in 
such manner as to save all expense and time in sending them 
home to the issuers. That motive was most influential in intro- 
ducing the plan ; and Avith the country the operating motive in 
keeping up the process was the security it afforded against over- 
issues by such banks as were disposed to abuse their powers, 
and because it further secured to every bank that anount of 


circulation to ■wliicli its legitimate business gave it a title. But 
the effect of the arrangement was more important than this con- 
venience, or this security, indicated. It furnished a knowledge 
of their respective strength ; it gave a steadiness of movement, 
an increased power of accommodation to the business commu- 
nity, their customers, which was of mighty advantage to the 
industry and trade of the whole region. This plan originated 
in an agreement among the banks in Boston, by which a certain 
sum furnished by the others was lent, free of charge, to the Suf- 
folk Bank ; in consideration of which that bank undertook to 
receive from the others all their country bank-notes, and send 
them home for payment, or arrange Avith the issuers for their 
redemption. The Suffolk Bank succeeded in making an arrange- 
ment with the country banks, by which all their indebtedness at 
Boston is settled at that bank. Of course this involved large 
operations. The quantity of manufactured goods sent by the 
interior to Boston is immense; and the value of the cotton, wool, 
iron, flour, pork, beef, and other domestic products, and of the 
foreign goods offered for sale at Boston, taken into the country, 
must also be immense. Very much the largest portion of this 
trade must be carried on, in the first instance, by the individual 
paper of the respective purchasers. To a very great extent, the 
paper given by the merchants of Boston for the products of the 
interior is set-off, in this adjustment at the Suffolk Bank, against 
the paper given by the country merchants, manufacturers, and 
dealers, for their purchases in Boston. However this paper may 
be negotiated or circulated, both parties rely on the goods they 
purchase to take up the paper they give for them ; and the 
respective claims are either held by the banks, and balanced on 
their books, or, if they have been exchanged for bank-notes, 
these are exchanged. The various banks of Boston, according 
to their position, and as their convenience or interests may dic- 
tate, settle among themselves a vast amount of indebtedness ; 
but all that docs not readily come within the scope of these 
minor adjustments is carried into the great liquidation at the 
Suffolk Bank. In this way not merely the debts which the 
country owes to Boston, and those which Boston owes to the 


country, arc settled, but New Haven and Hartford present their 
claims upon Portsmouth and Bangor at Boston, and so the latter 
upon the former. The Suffolk Bank not only calls upon others 
to pay, but must also pay to others. The business is resolved 
into a general adjustment of accounts. In the long list of banks, 
each one is debtor and creditor : the list of the debts exactly 
balances the credits ; but separately some fall in debt, and some 
have balances to receive ; and as the balances owing arc the 
same as those to be received, being in fact the same thing, those 
owing have only to pay into the Suffolk Bank their adverse 
balances, to be handed over to those holding favorable balances, 
and the whole liquidation is made. 

In this operation, vast as it is, there is only occasional need 
of gold or silver, and no use made of bank-notes, except to 
redeem them. In the great and direct movements of domestic 
exchange, by which cities and districts settle for their mutual 
purchases, the chief agency is the books of banks, and into 
these books the whole business finds its way ; the operation is 
completed with but small aid from either coin, bullion or bank- 
notes. The latter enter more largely into the business, because 
they are issued for circulation, and are thus used until they 
arrive in banks which employ them as a set-oflf against their 
own. It is not necessary, however, for the successful accom- 
plishment of this business, that the banks which conduct it 
should be anything else than banks of deposit and discount, 
without specie, and without the power to issue notes. In this 
case, the only change in the business would be that the place of 
the notes would be supplied by checks and drafts. The parties 
who receive and deposit the notes would draw upon their debtors 
for the same amount, and receive it through the banks, thereby 
giving to the deposit banks the same amount of claims upon 
each other as the notes would give to banks of circulation. It 
is not intended to say that the notes are not the most conve- 
nient, but simply that this great discharge of mutual obligations 
is not dependent on them for efficacy. Other means of effecting 
it, with even superior facility and economy, may yet be found. 



Commercial Fairs — Their agency in commerce — Continued on the con-fines 
of Asia and Europe — Kiachia — Nijni Novgorod — Kief — Concentra- 
tion of payments — Fairs of Lyons — Payments of Lyons — Mode of pre- 
paration — The opening — Mode of conducting — Viramen de jjartie — Set- 
ting-off debts — Payment of balances — Results — Rationale — Illustrations 
— The Fairs of Novi and others in Italy chief y for the purpose of pay- 

The origin of the fairs/ or periodical markets, which for cen- 
turies constituted a chief feature of the commerce of Europe and 
Asia, is of remote antiquity.^ In the 13th, 14th and loth cen- 
turies, the greater part of the commerce of Europe was accom- 
plished at fairs. Thousands of these markets, shorn of their 
importance and magnitude, are yet held on those continents ;^ 

'Fairs are thus defined by Savary: — "A concourse of merchants, of 
manufacturers, of artizans, of workmen, and of many others of every con- 
dition, and of every profession, inhabitants and strangers, who meet every 
year at a special place, and at a special time ; some to bring thither, sell 
and deliver their goods, manufactures, works, merchandise, and provisions ; 
others to make their purchases, and some solely through curiosity, and for 
the sake of the amusements generally enjoyed at these sorts of assemblies." 
— Dictionnaire du Commerce, "Foire." 

* The fairs of Lyons have, according to some French writers, an antiquity 
as high as the period of Roman domination in Gaul. — Duchesne, Antiquity 
des Villes. A summary of their history may be found in Encyrlo. Metho- 
dique Commerce, vol. ii., page 140. 

•'' Not less than 500 are yet enumerated as existing in France, and up- 
wards of 70 in Belgium. It may be said thoy subsist with diminisliod im- 
portance throughout Europe; they have dwindled most in Great Britain. 
In many parts of Asia and Africa they remain in foil vigor. It is in the 
memory of many yet living, that fairs were held in this country, especially 



those best maintain their importance, whose locality is in Asia, 
or on the confines of Europe, and among a people whose civiliza- 
tion, industry, and facilities for trade, correspond with the state 
of Europe in the Middle Ages. The chief part of the commerce 
between Russia and China is now carried on at the Fair of 
Kiachta, in Mongolia, on the frontiers of China. The Russians 
carry to this fair furs, skins, Russia leather, woollen cloths, Ger- 
man and Russian heavy linens, cattle, and the precious metals, 
which they exchange for tea, silk raw and manufactured, porce- 
lain, sugar, rliubarb, nankins, musk, &c. The Fair of Nijni 
Novgorod, in Russia, is still the mart of a great trade ; its 
transactions have been estimated by some writers as high as 
$100,000,000 in the six or eight weeks during which they last. 
The actual sales, at the Fair of 1849, exceeded $45,000,000. 
The Fair of Sinigaglin, in Italy, retains also a large trade; the 
value of its exchanges, as late as 1834, being estimated at 
$16,000,000. It is very apparent that the concentration of 
merchandise and merchants which such an immense business im- 
plies must afford extraordinary facilities for trade, the making 
of payments, and indeed all kinds of mutual adjustment. 

In many parts of Russia, Poland and Germany, where the 
facilities of commerce are not even now equal to those of France 
and Italy two or three hundred years ago, some of the fairs are 
continued. To those mentioned above may be added that of 
Kief on the Dneiper, in Russia. Besides its fairs for merchan- 
dise, it has an annual assembly for payments, which lasts from 
the 10th to the 30th of January. In that of 1804, there were 
present 941 proprietors, 149 merchants, and 144 clerks. The 
payments of that year, estimated by a duty of a half per cent. 

in connection with liorse-racing ; but they never took deep root hero. Their 
existence is considered as an index of the state of civilization ; and it is 
observable that, in those countries where they most flourish at the present 
day, the state of industry, trade, and the progress in civilization is about 
that which existed in Europe during the Middle Ages. But that they still 
flourish in some parts of France is evident from the fact that, in 1833, about 
80,000 persons attended the Fair of Beaucaire, and that business was done, 
on that occasion, to the amount of $30,000,000. They prevail, to some 
extent, in Mexico. 


levied upon them, amounted to 22,659,000 roubles, equal to 
about ^10,994,250. This sum must, of course, have been set- 
tled in twenty days. 

Merchants found that a very great proportion of their pay- 
ments could be most conveniently made at certain fairs ; and 
that where it was most convenient for all to pay, it became most 
desirable for all to receive. Bills of exchange were generally 
made payable at the various fairs : these were held at intervals 
of from three to twelve months, and the bills were made payable 
at the fairs whither the parties generally resorted. A very great 
concentration of payments consequently took place. In many 
instances, the payments effected at the fairs vastly exceeded in 
amount the actual sales of commodities, and became the object 
of special attention and legislation. 

The modes of effecting payments, in the days when fairs 
"Were in the height of their importance, were various and multi- 
form in different countries, and even in the same country. If 
no special modes of payment or adjustment were resorted to for 
the purpose of saving time and expense, the vicinity of parties 
brought thus into contact enabled them to give to their goods, 
and to money, a circulation of tenfold rapidity. 

We refer to the methods and processes of the payments at 
Lyons as a specimen and illustration of the mode of adjustment 
pursued in these commercial assemblages of the Middle Ages. 

The fairs at Lyons were among the most important, in their 
day, of any in Europe. Tliere were held in that city four in 
each year : Kings, or Epiphany, began in January ; Easter in 
April ; August in that month ; and All Saints in November ; 
Four "payments" were also held, one for each fair. The 
Epiphany Payments were held in all March; those of Easter, all 
June ; those of August, all September ; and those of All Saints, 
all November. Engagements to a vast amount, arising out of 
other transactions than those which occurred at the fairs, were 
made payable, at these Payments, by bills of exchange, book 
accounts, and otherwise. Those Avho resorted thither cither for 
the business of merchandise, or for the payments of commerce 
carried on elsewhere, opened an account in their books with each 


Payment by name. This exhibited what sums the accountant 
had promised to pay, and ^Yhat sums others had agreed to pay 
him at each Payment, and the names of the persons, debtors 
and creditors. The balance of this account shoAved at once how 
much each merchant had to pay more than he was to receive, or 
to receive more than he was to pay, at each Payment. Bills 
drawn payable at future Payments were expressed thus : "Pa?/ 
to A. B. at next Easter Pa7/ments,"kc.; or, if Easter Fair had 
begun, and it was intended the money should be payable at the 
Payments of the same fair, it was expressed : " at the current 
Easter Payme7its.'' Much of the business done at the fairs was 
upon a credit of three or six months, and made payable at the 
proper Payments. A very large proportion of the sales were for 
cash ; that is, payable at the Payments immediately ensuing the 
.fair. The parties who had made up their accounts for the fair 
previous to their coming, continued their entries in the same 
account of their debts and credits, as they multiplied by the 
transactions of the fair, until it closed. Those parties who could 
not attend in person, or who preferred it, were allowed to send 
their accounts, duly authenticated, to be presented by an agent 
duly authorized. 

At this assemblage of all the principal merchants of Lyons, 
and of those from other parts of France, and from foreign coun- 
tries, every payment was opened with ceremony. The Provost 
Marchand came to the exchange with his Register, and six 
Syndics — two French, two Italians, and two Swiss or Germans 
— and then, after a short discourse to the assistants, recom- 
mending probity in trade, and observance of the laws, customs 
and usages of the place, the laws, customs and usages were read, 
and the clerk drew up a process verbal of the opening of the 

' " It is admirable to see the manner in which the bankers and merchants 
of Lyons make their acceptances and payments among themselves of the 
bills of exchange which they draw, and which are remitted to them from 
every part of Europe, payable at the Payments ; for there will be paid 
sometimes, in two or three hours, a million of livres, without disbursing a 
penny in money : that is indeed surprising to those who do not know how 
it is effected. It may not be out of place to explain it here. 


The first five days were devoted cliicfly to the presentation 
and acceptance of such bills as were not previously accepted : 
on the third day, however, a special meeting was held, at which 

"The opening of every Payment is made on the first day of the month, 
exceptino; holy days, for each one of tlio four annual Payments. During 
two hours each day set apart for that purpose, is held an assembly of the 
principal merchants of the place, both French and foreign, in the presence 
of the Provost of merchants, or, in his absence, before the oldest magistrate 
present, in which assembly commences the acceptance of bills of exchange 
payable at the current payment. This continues till the sixth day of the 
month inclusive, after which the holders of bills may protest them for non- 
acceptance during the rest of the month. 

" Formerly acceptances were made verbally-, and not by writing ; but 
the bankers and merchants of Lyons carried a little book called a bilan, 
in which to make acceptances. They entered in it all the bills of exchange 
drawn upon them, and which were presented by those who were the 
holders. An acceptance was signified by tlie mark of a cross on the mar- 
gin of the book in which they had registered the bill, which denoted that 
the bill was accepted ; but if they wished to deliberate whether they would 
accept the bill or not, they put a letter V on the margin, which signified 
{vu, seen) that it had been presented ; and when they refused to accept, 
they put S. P., which signified (sous protest) that it was under protest; 
that is to say, that he who was the bearer ought to protest it within three 
days after the current Payment, that is, on or before the third of the fol- 
lowing month. 

" But now acceptances are made in writing, in pursuance of the third 
article of the law of June, 1GG7, for reasons which will be mentioned in 
their place. 

" On the third day of the month of Payment, they fixed the rate of ex- 
change between Lyons and all foreign places. This was done at a meeting 
of merchants, foreign and domestic, in presence of the Provost of merchants. 

"On the sixth day, the business of payment commenced, and continued 
until the last day of the month inclusively, after which no entries in their 
bilans, or book of payments, could be made; and if any were made, they 
were held to be void according to law, 

" The Payments of each day were commenced by the merchants and 
beai-ers of bilan in the hall of tlie exchange, at ton o'clock in the morning, 
and terminated at half-past eleven, after which hour no furtiier payment 
was allowed. 

"The mode of proceeding was as follows: — The bankers and merchants 
carried to the exchange their bilan of debit and credit: that is to say, a 
book in which they had written on one side what was due to them, and 
upon the other what they owed. They addressed themselves to those to 


the rate of exchange between Lyons and all other places in 
France or abroad was settled and fixed for the current Pay- 
ments, by a plurality of voices. After the fifth day no more 
bills could be accepted ; and before the meeting of the sixth day, 
all the accounts for the Payment must be definitely written out 
and closed. These accounts were termed " bilans," being not 
mere loose leaves, but sheets carefully fastened or bound up 
together. A balance once made up and submitted could not be 
altered ; and its proprietor was, by the regulations of the Pay- 
ments, held responsible for the correctness of his entries. Such 
was the character of those admitted to these Payments, that a 
balance stated in this Avay, says an excellent writer on com- 
merce, who visited Lyons while these fairs were yet in full vigor, 
" carried, during my residence in that city, as much credit 
among the merchants of the place as if the same had been done 
with witnesses by a public notary." Those whose business did 
not admit their being the bearers of bilans, were permitted to 
send in their debts and credits by any broker or banker who 
would become responsible, by adding them to his own. 

All the preliminaries being accomplished, on the morning of 
the sixth day the bearers of these little books, or prepared state- 

whom they were in debt, and gave them for debtors one or more of those 
who owed them a like sum : this debtor, or debtors, being accepted in their 
place, the substitution was entered in their books, and the debt was regarded 
as paid. All parties did the same, and so the payments proceeded. At 
the end of the month, those who owed more than was due to them paid the 
amount in ready money to the holders of bills who had more coming to 
them than they owed. 

" The bills of exchange payable at the payment, and not paid before the 
last day of the month inclusively, were to be protested within the three first 
days of the following month. 

" If a banker or merchant accustomed to carry a book at the place of 
payment meets with no one willing to accept him as a debtor, during the 
time of payment, he is reputed to have failed. There is no place in the 
world where merchants are more ready to give credit than at Lyons ; so, 
also, there is no place where payments are more punctually made ; for, if 
the time of payment is permitted to pass one day, the credit of the party is 
lost, and ho is accounted as bankrupt." — Parfait Ner/ogiant, par J. 
Savarij, 4to, 1777 ; tome i., chap, xii., p. 257. 


ments assembled at the exchange as the clock struck ten, and 
afterwards upon each day not a holy day at the same hour, to be 
adjourned at precisely half after eleven. In this assembly every 
one present met his debtors and his creditors, or those Avho ap- 
peared for them. The mode of adjustment adopted was for each 
one, by inspection of his book, to ascertain in what way he could 
best apply his credits in discharge of his debts : the usual man- 
ner of proceeding was by debtors procuring the assumption of their 
debts by those who were indebted to them. A. owes B. a thou- 
sand, and B. owes C. fifteen hundred. B. asks A. to assume a 
thousand of his debt to C. : the latter accepts the assumption, 
and a thousand is thus paid. By comparing books, it is per- 
ceived that D. owes a large sum to E., the latter a like sum to 
F., the latter a like sum to G., the latter a like sum to H. ; and 
all being met, it is agreed that these sums shall be acquitted by 
a payment from D. directly to H.^ In all cases these under- 

' The act of writing off debts, or making these assumptions, was called, 
technically, a "viremen de pajiie," a term in much use, and of pregnant 
meaning, in European commerce a few centuries ago. 

"According to article fourth of the law of 1G67, the business of transfer- 
ring, paying or setting-off debts was to commence on the sixth day of every 
payment; but according to usage, no written entries were made iu their 
books until the sixteenth. 

" The viremens de jMvties are transfers, or set-offs, which the bankers and 
merchants make among themselves, by means of which they pay in a mo- 
ment considerable sums with little or no money. 

" To accomplish easily these payments, or set-offs, the bankers or mer- 
chants who frequent the exchange make a " bilan," or statement, for every 
payment in which they enter to their debit the sums which they owe, and 
the names of those to whom they are in debt; and to their credit the 
sums which are due to them, and the names of those who owe them. When 
they commence paying, they look upon the debtors of the person who owes 
them as their own debtors, and the creditors of the person to whom they 
are in debt as their own creditors." 

The author here furnishes the model of a transfer, or set-off, which makes 
the matter no plainer than to say tliat some two, three or more persons 
find, by inspection of their books, that they are debtors and creditors of 
each other in such way that they can, by a transfer, or by assumption, of 
one of the parties, pay off or extinguish two, three or more debts. It is 
plain enough that when A. owes B. a sum of money, and B. owes C. the 


takiiio-s are forthwith entered upon the book in the hands of 
each, so that the books continue to exhibit the exact progress of 
the adjustment, and the state of indebtedness up to the close of 
the payments. It is impossible, by any description, to trace the 
processes by which parties thus situated could finally reduce 
their indebtedness to the mere balances which each one had to 
receive or pay more than he owed, and till it was seen that the 
balances to be paid were, in the aggregate, the same that were 
to be received, being in fact the same thing. It is obvious that, 
so long as any one who owed anything had any amount coming 
to him, he could apply it to his debt ; and the adjustment would 
only cease when the debtors present had no further credits which 
they could apply to the further reduction of their indebtedness. 
They could do nothing more than pay the balances of their 
several accounts to whomsoever they might have become indebted 
in the many assumptions which had occurred. In each case this 
balance would be precisely what the statement exhibited at the 
beginning ; that is, the result would show that each person would 
have to pay in, at last, the precise sum which his statement 
showed, at first, he was in debt more than was coming to him ; 
and of course each one having a favorable balance would receive, 
after his debts were all paid, the sum which, at the first, he 
knew was coming to him more than he owed. The changes of 
indebtedness Avhich would take place in the progress of such an 
adjustment might be many, but the result would be according to 

same sum, and so on through the alphabet, one payment by A. to C. is 
enough to discharge the whole, if all are present, consent, and make the 
proper entries. So, however complicated the indebtedness, the parties 
could proceed by dividing sums, until all was paid, except the balances. 

"According to article eight of the law of 1667, it was necessary that 
every transfer, or set-oflT, should be made in the presence of all concerned 
in it. Every such transaction, after twenty-four hours, becomes irrevoca- 
ble and binding as any act whatever ; and if any party concerned in a 
transfer is not present at the exchange at the time of the writing, they take 
care to send him a memorandum of the transaction, and if he keeps silent 
twenty-four hours, it is regarded as binding, and the debt as paid." — 
Banque Rendue Facile aux Principules Nations de V Europe, par 11. P. 
Girardeau, NegoQiant a Lyon; 1703, 4to, page 129, also 302. 


the original statement. It is clear that, by perseverance and 
comparison of books, they could not fail of a complete discharge 
of all the mutual indebtedness, and payment of the balances 
would close the whole. 

The following account of these Payments is from a reliable 
English writer, who was himself a witness of the process : — 

" The sixth day, all the merchants residing upon the place 
appear in a certain public room, near the Bourse, with their 
books or bilans, containing both their debits and credits of both 
open debts and bills of exchange ; and these address themselves 
to one another, and to whom they are indebted, intimating unto 
them their readiness to transfer parcels, or, as they term it, virer 
partie, to give for debtor one or more who doth owe and stands 
indebted to them the like sum or parcel, the which being accepted 
by the creditors, the sum is respectively registered and noted in 
the hilan aforesaid ; and after that time that parcel is under- 
stood to be transferred, and remaineth entirely upon the risgoe, 
peril and fortune of the party that did accept the same. And 
in this manner here I have observed a million of crowns hath 
in a morning been paid and satisfied, without the disbursement 
of a denier in money ; and, therefore, to this purpose all mer- 
chants resident here, or their servants for them, are compelled 
in this manner to appear with their bilans, thus to satisfy 
accounts with their creditors, and make good their payments, 
or, in default of their appearance, are, by the custom of the 
place, declared as bankrupts. And this, in brief, is the remark- 
able custom of Lyons, in matters of exchanges, upon every Pay- 
ment." ^ 

The parties who, at the opening of the Payments, knew they 
would have balances to pay or receive, could not anticipate to 
whom they would, by the result of all the operations, make pay- 
ments, or from whom they would receive them. These balances 
to pay or receive being of equal amount, corresponding, of 
course, in the aggregate to each other, might have been paid in 
at the office of the exchange, and have been taken by those enti- 

' "Map of Commerce," by Lewis Roberts, edition of 1700, Chap. 303. 


tied to them, and then the result of the adjustment would have 
been merely a setting-off of mutual debts, without a remainder. 
At Lyons it required the continuation of this process for several 
weeks to close up the large transactions of that city, and the 
merchants who congregated there. No doubt there was much 
room for the exercise of commercial and arithmetical skill ; and 
as one object Avas in the view of all, the whole operation was 
greatly expedited by the efforts of expert, prompt and expe- 
rienced merchants, who would be present. 

To understand more fully the rationale of this mode of adjust- 
ment, let us examine in what other modes the end could have 
been attained. If we suppose this assemblage to be seated round 
a vast table, any one having a sum of 10,000 livres in coins 
could have paid it to any other to whom he owed that sum, or 
more ; the receiver could, in like manner, have passed it round 
to any one to whom he was indebted, and so on, each one making 
the proper entry on his book. This money might thus circulate, 
until it fell into the hands of some one who had paid all his 
debts. A further sum might then be started from another quar- 
ter, and be circulated with like result. It is obvious that this 
circulation would not cease until the payments were nearly com- 
pleted ; and a comparatively small sum would, by such circulation, 
effect the Avhole adjustment : a sum sufficient to pay the final 
balances would be ample to pay fifty, or a hundred times the 
amount, as rapidly as it could be passed round the table. 

Another mode would have been to make a common fund of 
the whole of the claims, each person being entitled to an amount 
of that fund corresponding to the whole amount of the credits 
on his book, or " hilanJ" The payments might then have pro- 
ceeded by each one drawing checks for the precise amount of 
his several debts, and delivering them to his creditors. This 
would have discharged the whole mass of indebtedness, except 
the balances, in a morning. Or, what would have been shorter 
still, each one could have delivered simultaneously a release of 
all claims, except the balances, which their books showed to be 
payable and receivable by some who had to pay more than they 
had to receive, or to receive more than they had to pay. 


Or, another way. If a clerk had been appointed by consent 
of all, and a copy of each ^'"hilan" furnished to him, he having 
read them aloud before the whole assemblage, and no objection 
being made, could have declared the balance as stated, and 
have received the amount on the spot from those who had 
balances to pay ; and thus proceeding with the whole, each 
man's debts and credits would have been settled as soon as read. 
Each one, by inspection of his own statement, could have deter- 
mined whether the one read was correct, so far as it affected 
him. When the accounts had been read over, and the balances 
paid in, the whole business would have been adjusted, and the 
clerk would have in his hands precisely the sum necessary to 
pay those who w^ere entitled to receive more than they had to 
pay. This would have been a safe and rapid way of completing 
this liquidation. The same thing might have been done in a 
more formal manner, by taking the copies of the " bilans," as 
delivered in to the clerk, and making up from them a formal 
account with each individual, as might be done by comparison 
of all the statements, by which it would be seen if the claims 
made by each were admitted in all cases by those against Avhom 
they were entered. Tliis formal account with each being bal- 
anced, would furnish the same result. 

The amount of indebtedness thus discharged yearly at the 
"Payments of Lyons," independent of the balances paid in 
money, were estimated at from fifty to a hundred millions of 
crowns. The whole amount of coins required to pay the balances 
could not possibly exceed a quarter of a million.' 

There were many fairs which, from their central or conve- 
nient situation, were made principal points for this mode of ad- 
justing accounts. Lyons was one of these. At some, as Novi,^ 

' As late as 1841, business was transacted, at the Fair of Leipsic, to the 
amount of £4,905,000, and this witliout including tlie vast business dono in 
the sale of books. — Facta and Figures, pago 57. 

^ "Novi is in the Genoese territory, upon the confines of Lombardy. It 
is there the Fairs of Genoa are generally held, called, however, now the 
Fairs of Novi. They wore formerly held at Bizanzone. At those fairs the 
chief bankers and merchants of Italy, Lyons, &c., meet for the purpose of 


Placentia, and Bolzano, in Italy, scarce any other business was 
done. Of the former, Postlethwaite gives this account in his 
"Dictionary of Commerce:" — "Though there resorts here 
no small concourse of tradesmen, Avith all sorts of commodities, 
yet 'tis not that which renders them so considerable, as that the 
most eminent bankers and merchants from Lyons, Italy, and 
from some other more remote parts, meet here to settle their 
affairs, and balance accounts, chiefly in matters of bank and ex- 
change." . . . "This fair being principally for regulating 
payments four times a year, it might properly be called the 
transfer fair ; for, of the many millions there negotiated in a 
year, there's not above 100,000 crowns paid in specie." — Arti- 
cle ^^ Fairs." 

At the present time we have no data from which to estimate, 
or even approximate the amount of the payments made at the 
fairs of Europe, in the period of their greatest success. We 
know that when trade had increased, in certain channels, to such 
an extent that the fairs no longer sufficed as places of depot or 
sale, payments continued for a long time to be chiefly made in 
them. Those who are curious on this subject may, in the travels, 
memoirs and histories of the time, find abundant evidence of the 
immense agency of these institutions in the promotion of foreign 
and domestic trade. They will find, also, that the payments 
made in the precious metals bore a very small proportion to 
those made in the manner we have indicated. 

The usefulness of the fairs arose from the concentration of 
merchandise and merchants, and the consequent efficiency given, 
in the first instance, to the circulation of money. This concen- 
tration led to the discovery of the system of payments afterwards 
adopted. This system, doubtless, had its agency in leading 

making payments and adjusting accounts, especially those which concern 
banking. Very little other business is done. There are four of these fairs 
held each year; each lasting eight days, though sometimes the business of 
the bankers and merchants prolongs that period." — Traill Generale du 
Commerce, j)^!''!' Samuel Ricard ; l^fh edition par N. Siruyck ; Amsterdam, 
1732, page 337, 4to: and see, at page 595, full instructions for keeping 
books in reference to the mode of settlement at these fairs. 


bankers and merchants to tlie adoption of a more effective bank- 
ing system. It taught men not only the mutuality of commerce, 
■which enabled them to set-off mutual debts, but also the use of 
circulating credits as a medium of exchange, or a means of pay- 
ment. It set men free from the idea that payments must neces- 
sarily bo made in money, and convinced them that, however 
important the precious metals Avere in occasional emergencies, 
and hoAvever necessary for payment of balances, and for the 
business of retail trade, they were not only not necessary, but a 
positive impediment in the large operations of trade. It taught 
them that mutual confidence, and undeviating punctuality, were 
the true foundations of that system of exchanging the products 
of industry with each other, which men call trade. 



Banlc of Venice — Originated in 1171, in a loan to the Republic — Office of 
transfer — Interest promptly paid — Transferred in any amount in pay- 
ment of commodities and of debts — All sinyis deposited with the Bank 
taken by the Republic — In 1423, bills of exchange and payments in gross 
ordered to be made only in bank — Premium on bank funds — Circulation 
— Banco del Giro — Evils of coinage, and severity of laws respecting it — 
Department for deposit of money repayable on demand — Deposit transfer- 
able — Its success, loithout injury to the old business — On two occasions 
these deposits taken by the Government, but repaid — Amount of capital of 
the Bank — London Encyclopaedia cited and corrected — Causes of agio — 
Precaidions against fraud — Great concentration of payments at Venice, 

In the year 1171, a Venetian fleet of a hundred galleys was 
sent to avenge an outrage perpetrated by the Grecian Emperor, 
Manuel, upon Venetian merchants in his empire. This fleet 
humbled his pride, and compelled him to give satisfaction. The 
contest is memorable for having given origin to the Bank of 
Venice. " For the republic being oppressed by the charges of 
the war against the Emperor of the East, and at the same time 
involved in hostilities with the Emperor of the West, the Duke 
Vitale Michel II., after having exhausted every other financial 
resource, was obliged to have recourse to a forced loan from the 
most opulent citizens, each being required to contribute accord- 
ing to his ability. On this occasion, and by the determination 
of the Great Council, the office of chamber of loans (la camera 
DEGl' imprestiti) was established: the contributors to the loans 
were made creditors of that office, from which they were to receive 
an annual interest of four per cent."^ The Bank of Venice 

' M'Pherson's Annals of Commerce, vol. i., p. 341. Sanuto; Vite di 
Duche di Venezia, App. Muratore Script v., xxii. col., p. 502. This is 



gradually assumed the form under which it was, for many ao-es, 
the admiration of Europe, the chief instrument of Venetian 
finance, and the chief facility of a commerce, not surpassed by 
that of any European nation. Its progress and form were, how- 
ever, clearly that which naturally grew out of the position of the 
first contributors to the loan. Its origin was not the first occa- 
sion in Venice, or elsewhere, where the State became a borrower 
from its subjects ; it may have been the first in which the 
loan was taken by a regular subscription, and the subscribers 
became a specially constituted board for their own protection, and 
the management of the loan.^ The book in which these loans 
were inscribed was authenticated by the government, and made 
evidence of the whole amount of the debt, with the proportion 
belonging to each subscriber. It was an easy step to commence 
the transfer of these loans in part, or in whole. The interest 
was punctually paid by the government into the office, and dis- 
tributed thence to those who were entitled to it. Facility 
of transfer, coupled with the security of the State, and regular 
payment of the interest, seems to have led to a very rapid cir- 
culation of this loan.'^ It must have been regarded, at that day, 
with great favor as a mode of investment, for nothing of similar 

thought to be tho first mention of a rate of interest per cent. Four per 
cent, was, uo doubt, far below the customary charge of that day ; but whe- 
ther foreseen or not, the privileges of the chamber of loans soon indemnified 
these public creditors for this low rate of interest. 

■ " If I mistake not, this bank is also the most ancient establishment of 
a permanent national debt, or the funding system, which is now carried to 
such a height in almost every country in Europe." — M'Pherson's Annals 
of Commerce, vol. i., p. 342. 

2 "As the interest of the loan was always paid, every credit 
inscribed on the' book of the chamber of loans miglit be regarded as a pro- 
ductive capital; and by laws, these inscriptions, or tho right of receiving 
the interest upon them, could be frequently transferred from one citizen to 
another. This practice, in the course of time, exhibited to all the lenders 
how very simple and easy was the process of paying and receiving debts 
among themselves by tr.ansfors upon these books ; and from the moment 
that the advantages which commerce might derive from this metliod of pay- 
ing debts was perceived, bank money was invented." — Econ. Politique, 
par Henri StorrJi ; vol. iv., p. 95. 



convenience and availability has ever been enjoyed, or was then 
accessible.' The creditors, being thus associated, could bring 
their united influence to bear upon the government, to insure 
the regular payment of interest, and to obtain such extension 
of privileges as time and experience showed to be important 
and valuable. The reimbursement of the loan ceased to be 
regarded as either necessary or desirable. Every creditor was 
reimbursed when he transferred his claim on the books of the 
bank. From being convenient and valuable as an investment 
readily obtained, and as readily disposed of, it became, by a 
natural process, a medium of payment in transactions of com- 
merce. That fund, which was desirable to all seeking invest- 
ment, would be willingly, in many instances, accepted in pay- 
ment of debts already existing, or for goods just purchased. 
There is good reason to believe that this fund was largely used 
in this way for centuries before the final arrangements were 
made, of which our accounts are more clear. It is not unlikely 
that irregularities crept into the mercantile usages of the bank ; 
that transfers were made otherwise than in the bank, and per- 
haps by circulating papers or checks authorizing the bank to 
make transfers for the amount expressed to bearer. Such a 
practice, unauthorized by the State, would lead to confusion, to 
mistakes, to forgery, and litigation. Whatever may have been 
the malpractices which grew up in the usages of the bank, in the 
fir>t two hundred and fifty years of its history, it fully vindi- 

' " There was at Venice that which, more than any previous commercial 
policy, opened men's eyes to an advantage of great importance, contributing 
alike to the prosperity of the State, and to the benefit of trade. She was 
the glorious inventress of the Guarantied Bank [banco g.arantito], differing 
both in its operations and by its security from common banks, as much as 
fniia those called public banks. For, in the case of the Guarantied Bank, 
if robbery occurs, if the servants and officials of the bank commit fraud, if 
the managers administer it badly, the government is held responsible for 
the whole; no private person suffers any loss. But in the case of other 
banks, the government is only bound to do justice, by giving all the assist- 
ance it can in the discovery and punishment of the criminals, and for the 
recovery of the loss." — Broggia Trattate delle Monete, vol. ii., p. 270, 
being vol. v, in Cusiodi's Collection of the Ecoiiomisti Italiani. 


cated, in that period, its power and utility as a financial agent 
of the republic, and its efficiency in promoting the movements 
of commerce. 

There is no question, although we have not the details, that 
the government had found it perfectly easy to enlarge the 
amount of the original loan or stock of the bank, as the demand 
for its funds generally exceeded the supply. All money deposited 
for the purpose of obtaining a credit in bank was accounted an 
addition to the original loan, and as such taken into the public 
treasury as money lent to the State. Every such investment 
increased the stock of the bank, and replenished the treasury of 
the republic. If individuals could make purchases and pay 
debts by transfers in bank, the public treasury could well afford 
to receive, in payment of its dues, credits in bank, as that would 
be only equivalent to taking up its own obligations. Thus, the 
more these credits were employed, the more the demand for them 
increased, the more rapidly money flowed into the treasury, and 
the more readily the government could afford to receive payment 
of its revenues in the funds of the bank.^ 

The way was opened, by the experience of two centuries and 

■ " By degrees the government introduced the usage of making certain 
payments by drawing upon the bank, in place of making them in specie. 
It commenced by receiving these drafts into the public treasury without 
hesitation ; and when this usage became established, a law was passed, 
that bills of exchange might be paid in money of the bank, whether foreign 
or domestic, when drawn for above the sum of three hundred ducats. These 
drafts could not be refused, unless stipulation had been made to the con- 
trary." — Daru. de Hist. Venice, vol. iii., p. 73. 

" To give these bank credits great rapidity of circulation, an account of 
debit and credit was opened with every proprietor, admitting of the prompt 
transfer of credits ; and that these might be readily effected and accepted 
with safety, it was decreed that they should not be seized in execution for 
debt, nor be the subject of mortgage." — Ihid., p. 74. 

This statement may not be strictly correct, in asserting that the enact- 
ment, that all payments not otherwise agreed should be made in bank, was 
the result of the use which the government had made of the bank. This 
decree was the result of the efficiency of the bank, as long experienced and 
admitted, and of the confidence that both the people and the government 
would derive <rreat advanta";e from the measure. 


a half, for the next chief characteristic of the Bank of Venice. 
In the year 1423, in the administration of the Doge Thomas 
Moncenigo, it Avas decreed that all bills of exchange payable in 
Venice, Avhether domestic or foreign, should be paid, unless 
otherwise stipulated and so expressed, in the bank ; and that all 
payments in gross, or in wholesale transactions, should be 
effected also in bank. This at once brought the mass of the pay- 
ments of that great commercial city to the bank.^ Whatever 
irregularities, and whatever confusion had prevailed, this intro- 
duced a uniform and, from long familiarity with the bank, an 
intelligible system. The endless diversity, and bad condition 
of the coins circulating in Venice were a sufficient recommenda- 
tion of the new regulation to all Avho had not very special rea- 
sons, indeed, for disliking it. This measure at once created 
a great additional demand for the funds of the bank, and 
brought large sums into the public coffers. The government. 

' " It was established, by a solemn edict of the Republic, that all pay- 
ments of merchandise in gross, and of bills of exchange, should be made 
only in bank ; and that all debtors should carry their money to the bank, to 
receive credits in bank therefor; and that creditors should receive payment 
in bank, by a simple transfer from their debtors. He who was creditor 
upon the books of the bank became debtor as soon as he had made his 
transfer, or payment, to another, who became creditor in his place. Thus 
the parties did but change their position, without its being necessary to 
make any payment in money (reel et effectif)." — Saverij's Diet, de Com., 
Art. "Bunque," vol. i., p. 277. 

"By this means the Republic of Venice, without restricting the course 
of trade, became the mistress of the money of the people ; and without being 
obliged to resort to extraordinary taxes to sustain the war against the 
Turks, so long protracted, it drew to the bank, and thence to the public 
treasury, the sums of which it had need, without resorting to loans, so often 
prejudicial to commerce. The credit granted by the government on the 
books of the bank for this money continued to perform the same functions 
as the money. Although, for distinction, called imaginary money, it was 
equivalent to real money, since it had the same value. No one believed 
himself less rich from his money being all in the bank, because, with his 
credit in the bank, he could obtain money when he wished ; whilst the Re- 
public, from this bank, and the credit which it had given it, drew effective 
succor for its wants, an aid which it never could have received by taxa- 
tion." — Farfait Nejopant, vol. i., p. 4G4. 


however, no longer paid interest for the sums received from the 
bank. The funds obtained in this way were brought to the bank 
for the payment of bills of exchange, and were paid in for tha*- 
purpose, and not with a view to interest. The rapid succession 
of payments occurring at a point where all the payments of Ve- 
netian commerce were accomplished, made the intervals during 
which the funds remained in the hands of any one merchant too 
short to make him solicitous about interest on balances or depo- 
sits. As all payments of the kind above designated were, by 
law, to be made in bank, unless otherwise agreed, and as that 
mode of payment was far more convenient, it became almost the 
exclusive usage of trade. All who had engagements to meet, 
found them in the bank : of course, all such provided the bank 
funds necessary to meet them, or carried to the bank the amount 
of coins requisite for the purpose. The government continued 
to take all money paid in as a consideration for allowing an in- 
scription on the books of the bank to the credit of the depositor. 
The sums which thus flowed through the bank into the treasury 
would, with the previous bank funds, make up the quantity need- 
ful for the convenient discharge of the commercial payments of 
Venice. As this amount fluctuated from year to year, and 
during each year, with the course of commerce, a very efiective 
mode of accommodating the supply of bank funds to the exigen- 
cies of the demand came obviously into use. When the payments 
in bank were heavy, and the bank funds in great demand, money 
flowed freely into bank, and the credits were proportionably in- 
creased. When an occasional demand for the precious metals 
arose, the holders of bank funds could readily dispose of them 
at a slight reduction for coins. The purchasers of bank funds 
were sure of meeting soon a demand for them ; for the demand 
for a medium in which the ever-recurring payments of debts 
were made so much exceeded in intensity the occasional demand 
for specie for exportation, or any other use, that during the 
whole existence of the bank, with very slight exception, the 
bank fund was at a large premium over coins, so large that it 
was finally fixed by law at 20 per cent.^ 

' A full explanation of the ayio, or premium of the bank funds, in Venice, 
will be given infra. 


The republic could well afford to maintain a liberal policy 
towards an institution so important, both as a fiscal and com- 
mercial agent. That the inhabitants of Venice were well satis- 
fied, we cannot doubt, as not an objection was ever made to the 
bank, at least none is extant ; neither book, nor speech, nor 
pamphlet, have we found, in which any merchant or dweller in 
Venice ever put forth any condemnation of its theory, or its 
practice. There was no hesitation in carrying money to the 
bank, so long as it was not doubted that bank funds would pur- 
chase specie without loss, whenever it might be needed ; and the 
uniform premium of bank funds settled that point. Under such 
a system, the regular payments of trade would proceed with a 
rapidity and economy previously unknown, so far as the history 
of commerce informs us. In this aspect, it deserves special 

" If Joan, Pierre, Claude and Jacques, and consecutively every inhabi- 
tant of the same town, had but one banker, who kept an account with each 
one of them in a register provided for the purpose, this banker could make 
all their reciprocal payments without moving a cent of their money, since 
it would suffice simply to write upon his register the receipt from one, and 
the payment by another; from which would result two things — they would 
avoid the trouble of receiving and counting money, and the expense of each 
having a cashier and book-keeper. 

"Another respect in which the position of this banker would be advanta- 
geous to them would be, that he could put the money of all to good use, 
without diverting it from its proper destination, or interrupting the pro- 
gress of their payments, which would be effected there by means of his 
books. And a third advantage would arise if this same banker would lend 
the money thus economized to his customers, by which they could augment 
their trade, both at home and abroad. 

"This is what the llepublic of Venice happily accomplished by the esta- 
blishment of its bank, which became a perpetual banker for its inhabitants. 
It received from them the money previously employed in payment for mer- 
chandise in gross, and of bills of exchange ; for, by public edict, all pay- 
ments for merchandise in gross were to be made only in bank. All debtor? 
were obliged, for this purpose, to carry their money to bank, and to receive 
credit therefor, and all creditors to receive payment there. Every payment 
was made by a simple transfer of a credit upon the books of the bank from 
one to another. He who was a creditor upon the book of the bank became 
debtor as soon as he had assigned to another, who thus became a creditor 
in his place; and so on, from one to another, the parties simply changing 


their position of debtor and creditor, without any necessity of a payment 
in money." ' 

If there "n^ere a thousand accounts opened in the bank by the 
chief men of trade in Venice, thej would be found to be all pay- 
ing as Avcll as receiving, and the sums to be paid would be mainly 
to each other. There would, therefore, be a vast sum in the 
aggregate payable yearly by persons in Venice to persons in 
Venice. If the whole number of such persons be taken by con- 
jecture, as above, at a thousand, then nearly the whole sum 
owing by all of them would be receivable by all of them. It 
would, to a large extent, be a mutual debt among the thousand, 
each one having to pay to others not far from the same amount 
he was to receive. If the whole sum to be paid and received 
annually was a hundred and twenty millions, the monthly pay- 
ment would be ten millions, and the daily over three hundred 
thousand. The amount of bank funds which would be sufficient 
to meet such a daily, monthly, or yearly aggregate, experience 
and time could alone fully teach. It would depend on the 
rapidity of the movement ; on the regularity with which the paper 
matured ; on the degree of confidence subsisting among the par- 
ties, which would lead them to favor each other by short loans, 
from those who could spare for a brief time to those whose re- 
ceipts did not, for the time, correspond with their payments. 
The whole fund in the bank would thus move in a circle among 
its customers, each one receiving and paying yearly according 
to the extent of his business. The fund Avould substantially 
remain, all the time, among the same persons, only varying in 
the distribution." 

■ Parfait Negotiant, vol. i., p. 4G3. 

^ It was from this movement in a circle, the efficacy of which was fully 
perceived in Venice, that the bank took the name by which it was long 
called in Europe, Banco dkl Giro. It was seen that each day's business 
caused the transfer of a large amount of the bank credits, and a correspond- 
ing change of ownership ; and that this change took place day after day, 
and yet, at the end of a year of these daily changes, the wliolo credits bo- 
longed to nearly the same persons, tliough not perhaps in the same propor- 
tions. It was as if they were moving in a circle, of which each day was a step ; 
but whether moving slow or fast, they could not go beyond the enclosure. 


It is worthy of remark, that this very efficient mode of adjust- 
ment discovered and used so largely at this early period in the 
history of commerce, was not dependent for its efficacy on the 
guarantee of the republic. That guarantee sprung out of the 
mode in which the bank originated : this convenient method of 
liquidation sprung from the use of this new substitute for money. 

The facility of payment furnished by the bank, which made 
it the admiration of Europe, honorable at once to the government 
and merchants cf Venice, and a support to the pride and power 
of its people, consisted in substituting, as a medium of payment, 
the debt of the republic for current coin. The coin in circula- 
tion in Venice was, in many respects, a nuisance of the most 
vexatious kind. It consisted not only of the variety which the 
many mints of Italy at all times afforded, but of that vastly in- 
creased variety which had accumulated from the coinage of more 
than a century. Besides this multiplicity of the new and old 
coins of Italy, was the coinage of many countries of the far East 
with which Venice carried on a vast commerce. To make all 
the payments of the domestic and foreign trade of Venice in 
these coins, of different degrees of purity, and many of them 
much deteriorated by wear, required time, patience, and skill, 
which but few merchants could adequately command,' The 

It was well understood, too, in that day, that if coins had been employed 
in such an adjustment, they would have performed the same rotary move- 
ment, so far as they could be made to effect it. 

"Car sans debourser aucune sommo, il s'y fait i, toute heure dos paye- 
mens pour les quels il ne faut que changer de nom des parties : de sorte 
que les sommes y roulent de I'un d I'autre sans sortir des coffres des Prince, 
que jouit do ce fond sans payer aucune intferet." . . . "On I'appello 
Banco del Giro k cause de tours perpetuels que I'argent y fait. — Traite 
Generale du Commerce, par S. Ricard, 1732, page 301. 

' With all the advantages of their bank, the Venetians were extremely 
careful to restrain abuses of their coinage. Their coins enjoyed a high 
reputation for purity throughout the world. They punished those who 
were guilty of infringing the laws for the protection of the coinage with 
whipping, and other severe penalties. Persons were equally prohibited 
from paying or receiving coins at a rate more or less than the nominal 
value. No doubt one effect of this strictness was to promote payments 
in the bank in a fund which the mischiefs of coinage could not reach. 


facility offered by tlie government, tlirough the bank, saved all 
this. The government took the coins one time for all, giving 
therefor a corresponding credit in the bank ; and allo-vvcd the ^ 
depositor or lender to transfer this credit claim upon the republic 
in payment of his debt, in place of transferring or payino- over 
the coin in each payment. Whatever men can employ in pay- 
ment of debts, they will be willing to receive in payment, and 
this independent of any legal compulsion. 

Experience soon evinced the power and convenience of this 
mode of payment. These bank credits were divisible to every 
desirable degree, and they could be transferred with a readiness, 
speed and safety, beyond all comparison, superior to any mode 
of paying in coin. The same sum or credit might be kept in 

Foreign coins were only allowed to be introduced into the city under very 
special regulations. Dealing in coins by private or public banks was pro- 
hibited under severe penalties. All coins to be changed or sold were to be 
carried to an office opened for the purpose at the mint ; the determination 
of the authorities being to protect the mass of the people from all the evil 
practices of dealers in coins. All contracts made payable in coins were to 
be at the rate named in the law. Every tradesman or laborer induced 
or compelled to take any coin otherwise than at the legal rate, was 
enjoined to make known the facts to a court of justice, and exhibit the 
money paid to him ; upon which the party paying him this money was not 
only compelled to give him legal money, but to pay him also twenty-five 
ducats of a fine. 

Every person carrying money into Venice was obliged to submit it to the 
inspection of a public ofBcor at the mint. -Any failure to comply with this 
involved a forfeiture of the coins so introduced into the country. 

Ofiicers from the mint were required to pass daily through the city, visit- 
ing especially places of dealing, to give information, to detect offenders, and 
to see the kind of coins in circulation. These officers were not permitted to 
receive compensation of any kind, but were to render their services free to 
the people. 

These regulations were printed, and fixed in conspicuous places through- 
out the city. Informers were not only encouraged, and their names kept 
secret, but, in many instances, they were largely compensated out of the 
pockets of the offenders. The severity of these laws is such, in fact, that 
it is difficult to imagine what could have been the extent of the abuses 
which made them necessary. For full details, see Marpcrr/er on Banks, 
pp. 180 to 189, 4to : Berschreibung dcr Banqucn, von J. P. Marpevger, Leip- 
sic, 1717. 


such rapid circulation, as to eflfect an amount of payments, in a 
specified time, far beyond any possible movement of coin. This 
rapidity became a great economy, for a much less sum of credits 
was made to effect a given amount of payments with far greater 
speed than could have been attained with coin. But this 
economy resulting from increased speed and power of circulation 
was still more important, arising from the fact that the coins 
which were deposited as the basis of the credit were very soon 
again restored to the usual channels of circulation by the pay- 
ments of government. Thus the coin was not withdrawn from 
its proper functions, and the credits remained a perpetual fund, 
to be employed in large payments. This system of payments 
was so well adapted to the exigencies of commerce, that it was 
maintained in full vigor, in the great commercial city of Venice, 
for almost four hundred years. It was an institution or device 
of the credit system, for by its aid payments were effected, and 
that to a vast amount annually, without any use of coins or 
bullion. It only perished when the city itself fell, at the con- 
quest of Italy by Napoleon ; but the conqueror carried off no 
coin, no penny of prey. The credits of the bank were crushed 
under the rude touch of an invading foe. They were lost to the 
proprietor, but no equivalent passed into the hands of the de- 
stroyers. If the holders of these credits suffered, the invaders 
were not enriched. In assuming the sovereignty of Venice, the 
conqueror assumed the right and the duty of making good' these 
bank credits. 

In some respects, these bank credits of Venice approximated 
to the power and convenience of the bank deposits of our day ; 
and, but for certain regulations, they might have been fully as 
efficient. Some of these regulations will be noticed as we pro- 

Experience finally dictated that the convenience of merchants 
required a facility, in certain transactions, which the bank as 
constituted did not afford. This was simply a place of deposit — 
a bank, or office, in which coins or bullion could be deposited in 
safety, with the right of withdrawal at pleasure, or of transfer- 
ring the ownership, if desirable. To meet this requirement, the 


government established such an institution as a second or co- 
ordinate department of the bank. It was provided that money 
shouhl be received and credited, on the books of this office, to 
the depositor. This measure was completely successful. The 
republic having previously kept good faith with its citizens, they 
did not doubt that the plan of the new establishment would be 
carried out with equal fidelity.^ 

Those who received money for which they had no immediate 
use, and foreign merchants making purchases in Venice to carry 
to their own country, could thus deposit their coins in a safe place, 
and wait till the course of business determined what mode of 
disposition would be most beneficial or convenient. Such depo- 
sitors could not only withdraw their deposit, but could transfer 
the right to withdraw it, or its equivalent in other coins ; so that 
the funds of this deposit branch were always liable to be with- 
drawn. It became, of course, the depository for that large 
amount of money which, in every commercial community, must 
be kept ready for any occasion which the fluctuations of busi- 
ness, or public affairs, might disclose. Those even who had bills 
to pay with their money in a short time, making it necessary to 
carry it into that ancient branch of the bank, from whence it 
would pass into the public treasury, might prefer retaining it in 
their power until their payments matured. The convenience of 
this depository would lead, no doubt, to making many bills of 
exchange, and other liabilities, payable In coin, which had for a 
long time, under the law and usages of commerce, been payable 
in bank funds. Parties contracting previously having the privi- 
lege of making debts payable, by so expressing the contract, in 
coins, preferred omitting that stipulation, as the mode of paying 
in bank funds was the most advantageous and convenient. But, 
under the regulation of the new depository, the convenience be- 
came equal in each department, and other considerations would 

' " The necessity which existed, of making occasional payments in 
money, gave rise to the opening of a cash office (Caisse de Comptaiit) for 
those who wished to be paid in coins. P^xpericnco proved that this mea- 
sure did not cause any sensible diminution in the funds of the bank." — 
Did, de Com., par Savary, Article "Baiiqnc," p. 27G. 


determine the choice. The success of this depositoi-y did not 
check the flow of money into the public coffers, as the demand 
had always been greater than the supply of bank funds, and 
therefore caused no complaint nor disappointment on that ground. 
It was perfectly apparent that the bank, by this addition, had 
become a vastly more efiicient and useful institution ; and the 
whole policy of the republic shows that the importance of a 
steadfast and firm support of the bank was perfectly understood. 
A large amount of specie rapidly accumulated in the depository, 
which was transferred on its books from one person to another, 
in the same mode as in the other departments of the bank. It 
was, therefore, made to perform the adjustments of commerce, 
so far as applicable, as efficiently as the other, while the fund 
was constantly at the disposition of its owners. It bore no in- 
terest, and was therefore only profitable by the intermediate use 
thus made of it. The advantage to the holders was, that while 
they could dispense with keeping coins for occasional employ- 
ment as such, they could be made available for current payments 
in the new depository. Of course the amount thus kept would 
be small, in comparison with that fund which would be employed 
exclusively in effecting the ever-recurring payments of the great 
mass of liabilities constantly in course of liquidation. It Avould 
also be exceedingly fluctuating, because it would correspond with 
the changes of trade in each year, and from year to year. In these 
respects it would simply keep pace with the exigencies of com- 
merce ; no external force or power would restrain its limits at one 
time, and unduly extend them at another. It would be perfectly 
elastic and impressible to the movements of trade. None of the 
mischances of commerce could be charged to it, for it simply 
performed the duty of a depository, and permitted a change of 
ownership of the sums deposited to any extent desired. It was 
a servant, not a master. Bound by certain rules, from which it 
dare not swerve, it exercised no discretion. 

It was found, in process of time, that although the amount 
of the deposit thus made fluctuated largely, yet a great sum 
remained unmoved by any emergency of business. This was, 
in part, taken by the government on occasions of pressing 


need.^ On two occasions this cash office suspended payments ; 
and on one of these the suspension was continued for several- 
years ; yet such was the confidence in the government, and so 
accustomed were the people to the operations of the older branch, 
that the transfers of these removed deposits proceeded, durinor 
the suspension, as if the specie w^erc still present,'-^ the govern- 
ment receiving them in all payments to it ; so that, during the 
period of the suspension, the two departments of the bank were 
resolved into one, as to their 7node of operation, the fund in each 
being equally a public debt, but not of equal value, for the old 
bank credits maintained their advantage in that respect under 
all changes. The government seized the first opportunity of 
enabling the cash-office to resume its paym.cnts, and the whole 
current of this department of the bank fell into its appropriate 

The original capital, or subscription, which constituted the 
bank, is stated to have been 2,000,000 of ducats. In the middle 
of the 18th century, the amount was estimated at 5,000,000; 
and towards the end of that century, at the close of its long and 

' "Its credit was so fully established in the end, that although it was 
well known that the government had withdrawn a portion of the funds of 
the cash-office upon two occasions of great public necessity, upon which 
this department of the bank suspended payments (in 1600 and 1717), and 
although these suspensions were unexpectedly prolonged, the funds of 
neither branch suffered serious or general discredit. The confidence that 
the republic would make all right was unshaken. It was believed, too, that 
the government would at all times take these credits for anything due to 
the public treasury." — Dam, Hist, de Venice, vol. iii., p. 74. 

* " During the progress of the war against the Turks, the republic having 
exhausted its treasury, was constrained to suspend pa3'mcnts at this cash- 
office, which caused some diminution of the credit of the bank; neverthe- 
less, it did not interrupt its regular business. All the evil which it pro- 
duced was, that those who were afraid resorted to persons who relieved 
them by giving them ready money for their bank credits, at ten or fifteen 
per cent, discount. Several years afterwards the republic, upon occasion 
of a new coinage, returned the money to the cash-office, and restored it to 
its full functions and high place in public opinion. The credits of this 
office were soon again at par witli the precious metals, and so remained." 
— Far/ail Negoqiant, vol. i., p. 404. 


and successful career of five hundred years, at 14,000,000 or 

We have no means of determining the actual efficiency of the 
fund thus employed in the payments of Venice. There does 
not appear, in the notices of tlie bank left to us, any limitation 
to tlie circulation or transfers of the credits on its hooks. Every 
precaution, apparently, was taken to prevent mistakes ; and 
every transfer made by the clerks of the bank, in the presence 
of the parties, or their agents duly authorized, bore on its face 
the nature of the transaction.- No receipt or voucher was neces- 
sary, when a paj^ment was made in bank, as the transfer in pay- 
ment was regarded as the best evidence, being sufficiently expla- 
natory to show the actual nature and occasion of the payment. 
It is not improbable that the whole fund of the bank performed 
payments, in the aggregate, annually to five hundred, and per- 
haps a thousand-fold the amount. 

It does not appear that any tax was imposed upon these bank 
credits, except a collateral inheritance tax of ten per cent., when 
the funds of the bank descended, or were devised by a deceased 
proprietor, to collateral heirs; and a forfeiture, or escheat to the 
state, of such deposits or funds as belonged to proprietors de- 
ceased intestate without heirs. Both these were discontinued as 
soon as the necessities of the public treasury permitted. 

The Bank of Venice enjoyed a reputation, throughout the 
commercial world, which greatly promoted the success of Vene- 

' Histoire de Venice, par Daru, vol. iii., p. 75. 

2 The mode of making the bank transfers, and specimens of the forms of 
entries, may be seen in Posflethicaite's Didionanj, Art. * Venice;^ and in 
the Enci/clopcedia Methodique, Commerce, vol. i., Art. 'Banqiic.' The alpha- 
bet was subdivided, and each person applied to the book-keeper to whose 
subdivision the letters of his name assijrned him. Every subdivision had 
two clerks, by whom all transfers and entries were made. Tlie party 
making a transfer appeared before these two clerks, and dictated tlie entry 
or transfer to be made, and both clerks wrote in separate books fi-om that 
dictation. The entry specified what was paid, whether a bill of excliange, 
or balance of account, &c., and if a bill, where drawn, or in some way 
designated the bill. This made the entries on the books of the bank good 
evidence for all payments, and safe vouchers. 


tian trade. It -was a tower of financial strength to the republic 
in her long and expensive Avars, and of course contributed no 
small share to the celebrity of the city, as -svell as to its power 
and wealth. That the advantage of such an institution to com- 
merce was early and fully comprehended by the Venetian mer- 
chants, is evident from the fact that those engaged in their 
Eastern trade established a bank in Damascus, of which we only 
know that it was the repository of great treasure when that city 
was taken and pillaged by an Eastern conqueror, early in the 
15th century. 

" This bank was established on such judicious principles, and 
has been conducted, through the revolution of many centuries, 
with such prudence, that though the government have twice, 
since its establishment, made free with its funds, its credit has 
remained inviolate and unimpeached." ' This, from the "Annals 
of Commerce," is one of many loose and imperfect accounts of 
the Bank of Venice which have long been in circulation, trans- 
ferred from one work to another, varied and mingled, until it has 
become a complicated task to extricate the true from the false. One 
of the more recent of these statements we give entire from the Lon- 
don Encyclopaedia, as it furnishes occasion to correct some errors. 

" The original subscription fund of the Bank of Venice Avas 
2,000,000 Venetian ducats, equal to <£433,'3o3; but by a solenui 
edict of the Senate, the whole trading community of the republic 
were compelled to deposit their money in bank, with which a 
credit was opened equal to the deposit made, which could only 
be made available for transfer ; so that not only the subscribed 
capital, but also the aggregate amount of the deposits, resolved 
themselves into a national debt. 

" Whether the transfers at the bank, in the early period of 
its establishment, re({uired personal attendance, as is the case 
of transferrino- the national debt-stock at the Bank of England 

' M'Pherson's Annals of Commerce, vol. i., p. 341. It was a part of tlio 
fund of tlio cash-office wliicli was, upon einorgenoy, taken by the govern- 
ment for public use, and subsequently restored. In tlio mean time, the 
transfers of the office proceeded as if the specie was still in its vaults. The 
confidence of the people seems not to have been impaired. 


in the present day, or whether effected on written orders corre- 
sponding to the checks in the present English practice of banking, 
does not appear : but be that as it might, derangements in the i 
social economy of the state soon ensued ; the agio, or difference 
betAveen the current money and transferable amounts at the 
bank, attained the rate of thirty per cent. Yet such was the 
insidious and illusive nature of the bank system, that the bank 
increased in popularity in proportion to the extent of the de- 
rangement that ensued; the inconvenience frequently occasioned 
in the minor transactions of commerce, as well as on occasions 
of citizens or strangers requiring money to defray the expenses 
of foreign journeys, led, in the course of time, to the bank pay- 
ing out money. Yet such was the influx of money, which the 
crusading armaments brought from all parts of Western Europe, 
that after the system of making payments in money was prac- 
tised, the deposits always exceeded the demands. At a later 
period, when the Venetians themselves turned crusaders against 
the Turks, the subscription fund of the bank was increased to 
5,000,000 of ducats, the whole of which was made use of by the 
Senate to aid them in their operations of warfare ; and, as pre- 
viously stated, throughout the whole period of its career, it was 
made an instrument of aggression in aid of political aggrandise- 
ment : yet such Avas the fortuity of circumstances, and for seve- 
ral centuries having no rivalry, its integrity does not appear to 
have been questioned ; the derangements occasioned by the fluc- 
tuation of the agio led ultimately to an edict of the Senate, fix- 
ing it at twenty per cent., at which rate it continued uj) to the 
period of the extinction of the republic, in 1797." ^ 

It is very clear that that writer did not go far for his infor- 
mation. There is no doubt that the rule of the bank required 
the presence of the party transferring, either in person or by 
attorney; and this was carried so far, that no endorsed bills of 

' London Encyclopaedia, Art. " Bank." Laus est ah hoste landari. It 
is apparent that the Encyclopasdist knew very little about the Bank of 
Venice, and that he had not taken the pains to digest what he did know. 
He had no conception of it as a system, nor of its efficiency as a mode of 


exchange were permitted. The payee, or his attorney, could 
alone receive payment. 

The assertion that the whole trading community was com- 
pelled to deposit their money in the bank, is a great mistake. 
After the bank had been in operation more than two centuries, 
it was oi'dered that all bills of exchange, and all payments in 
gross, where parties had not otherwise stipulated, should be paid 
in bank. The only articles to be exclusively paid for in bank 
funds were oil and quicksilver. The rule that bills of exchange, 
not otherwise expressed, should be thus paid was no doubt com- 
plied with, because both convenience and interest dictated it ; 
but as cash payments for merchandise would be made when the 
contract was made, the payment would be in bank or other funds, 
as the convenience of the moment mio;ht suggest. 

It was a great mistake, also, to state " that derangements in 
the social economy of the state soon ensued ; the agio, or differ- 
ence between the current money and transferable amounts at 
the bank, attained to thirty per cent." The im.pression is created 
here, that derangements in the social economy wore caused by 
the peculiar constitution of the bank, and that the agio of thirty 
per cent, was unfavorable to the bank ; neither of which was 
the case. There is no evidence extant that the Bank of Venice 
ever caused any derangements of the social economy. The 
voice of the best authorities is all the other way. The bank was 
an advantage to Venice never questioned by those familiar with 
its usages. The agio, instead of being against the bank, was in 
its favor ; its funds rose to thirty per cent, premium over the 
current coins, and continued to fluctuate near this high rate, 
until the government, by decree, limited the premium to twenty 
per cent., at which it continued permanently fixed so long as the 
bank existed. The ground of this agio is not adequately ex- 
plained by any one, and was probably inexplicable to the ency- 
clopaadist, who evidently looked upon the institution with no 
friendly eye. 

The unit of the money of account of the bank was the ducat. 
A gold coin of that name had long enjoyed, in Venice, an ex- 
emption from the changes so frequent then in coins, and liad 


been held in high repute, fai' and vfldc, for its puritj. In tlie 
money of account formed upon that coin were the books of the- 
bank kept. It Avas said, by some, that the agio arose in part 
from the superiority of Venetian ducats to other current coins. 
But as it was perfectly understood that no coins passed, neither 
any right to any, on a transfer in the bank, it is impossible to 
attribute the agio to any such consideration. It is true, how- 
ever, that the nuisance of multiplied coinage has for centuries 
been exhibited in Italy in its worst aspect ; and the evil was 
aggravated in Venice by a large admixture of coins which her 
widely-spread commerce brought from all the world. In Italy, 
the perplexity caused by multiplicity of coins and moneys of 
account, as already noticed, reached an alarming extent. In 
the same city,- frequently, there existed among merchants quite 
a diversity in the moneys of account. It required a person spe- 
cially skilled to tell the value or price of the various coins pass- 
ing in trade, expressed frequently in different moneys of account. 
In some instances, special moneys of account were appropriated 
to special coins, or special commodities. 

Any method which offered an escape from such intricacies, 
from employing such coins, from the danger of taking counter- 
feits, and from the risk of keeping money on hand for large pay- 
ments, could not but be regarded with continued favor. Even 
at this day, the evils of an over-multiplied coinage press with 
great severity upon the people of Italy. Large quantities of 
coins lie, like bullion, in the coffers of the bankers ; and when it 
is necessary to dispose of them in bulk, a close and tedious in- 
spection becomes necessary. In a hundred coins, no five may 
be found alike. This mischief existed in full force in Venice, 
and had its due share, no doubt, in creating the agio. It is far 
from adequate, however, to account for the agio of thirty per 
cent, mentioned above, or the twenty per cent, fixed by law, 
much less an additional agio, to be mentioned hereafter. 

To comprehend this extraordinary fjict of a credit on the 
books of a bank, with no money in its vaults, and not bound to 
make that credit good in later times even by the payment of 
the interest, or to redeem it in any Avay, having been for hundreds 


of years at a high premium over gold and silver, we need only 
remember that these credits were the funds in which debts were 
chiefly paid. If credits had been convertible at will into the 
precious metals, the agio could never have originated, much less 
attained so high a point ; for the moment the holders of credits 
advanced the price, specie, if a legal tender, would have become 
the medium of payment, as the cheaper medium. In a commer- 
cial community like Venice, as elsewhere, large transactions 
were nearly all done upon credit. The chief use for money, or 
bank credits, was not in the purchase of commodities, but in the 
payment of debts incurred for goods purchased upon credit, or 
on time. When the republic decreed, in 1423, that bills of ex- 
change, and other large payments, should be paid in bank, unless 
the parties had otherwise stipulated, it introduced the usage of 
making nearly all payments there, because parties preferred 
receiving payment in bank, and in the fund in which they had 
to pay their debts. There was then probably ten times more 
demand for bank credits than for coins, which were only required 
for export, for the retail trade, and for other special but limited 
uses. The necessity of punctually meeting all commercial engage- 
ments was not less in Venice than in New York or Philadelphia. 
Failure to pay was ruin. The merchant in good credit might 
purchase at his pleasure upon deferred payments ; but the day 
of payment must arrive, and with it the unavoidable necessity 
of meeting these liabilities, hoAvevcr thoughtlessly incurred. To 
this compulsion no resistance could be offered ; from this obli- 
gation of mercantile punctuality there could be no escape, 
no evasion. Doubtless merchants in those days pushed their 
credit, as in later times, and found days of payment days of 
struggle, anxiety and difficulty, as merchants do now. Bank 
credits, by the law of the land and their own arrangements, 
being the only funds in which these constantly maturing, and 
constantly pressing debts, could be paid, were in a demand propor- 
tioned t(. this urgency. If the same mode of adjusting debts 
were resorted to now, the result would be, that inconvertible 
bank credits would go frcciucntly to a high premium over gold 
and silver. If any one doubt this, let them attempt a solution 


of the question, Why is it that our gohl and silver coins, and 
bank-notes convertible into them, remain at par, having no 
greater purchasing power when interest is at two or three per 
cent, per month, than when it is at half per cent. ? It is the 
demand for money to pay debts which thus advances interest ; 
and this does not affect the value of coins or bank-notes in cir- 
culation, because they are not available in the large payments 
of commerce. It is that fund which circulates in our banks as 
" deposits," which actually attains the highest rates of interest. 
This is the fund in which debts are paid, and the daily employ- 
ment of this fund is an hundred-fold the extent of any use of 
bank-notes or coins. It is upon this principle that we explain 
the agio of bank credits at Venice over the current money. 

No doubt this premium created surprise, and many, perhaps, 
looked upon it as unjust ; but it Avas the result of the merchants' 
own movements. The government did not cause it, nor did the 
banks. It was, therefore, acquiesced in by the merchants as a result 
of their own acts in their own business. The government, so far 
from producing, attempted to limit it to twenty per cent., an 
attempt which was rendered wholly abortive by the introduction 
of a sur agio, or super-premium, calculated upon the agio and 
the original sum together. This additional premium ranged at 
from twenty to thirty per cent, for a long period, and exhibited 
in its fluctuations partly the pressure for money to pay debts, 
and pai'tly the current value of the coins which were ofl'ered in 
exchange for bank credits. 

The precautions against mistakes and frauds enforced by the 
government of Venice in the affairs of the bank, far exceed any 
required by the authorities of the present time, jealous as they 
are of banks. Nut only, as we have seen, Avas every transfer 
made in the presence of two book-keepers, Avho were required to 
keep separate sets of books, but the bank Avas shut one day in 
each Aveek ; and four times in a year, each time tAventy days. 
This Avas to balance and thoroughly supervise the books. During 
the period when the bank Avas thus shut, no bill payable in it 
matured, or, rather, none could be protested until six days after 
the opening, six days being the grace allowed on bills in Venice. 


A custom obtained among merchants, and others, of writing-ofi' 
or transferring bank credits in blank during the time when the 
bank was closed. The entries intended to be placed on the 
books of the bank at the opening were made by the parties upon 
books mutually exchanged, or left in the hands of a broker, pro- 
per authority being given to make the entries, and the arrange- 
ment was completed, except the formal execution on the books 
of the bank. No doubt this facility was confined to those who 
entertained for each other great mutual confidence ; it may have 
led to many transfers of the same sum whilst the books were 
closed, and thus in part have compensated the injury to business 
caused by shutting the bank. 

The great feature of the Bank of Venice — that which 
required all bills of exchange payable in that great commercial 
city to be paid at the bank — appeared at first blush to be an 
arbitrary requirement, if not a most unjust one. It was giving 
a forced currency to the bank deposits, consisting merely of 
debts due by the government. It was soon found, however, to 
work so well in practice, that it brought an immense accession of 
business to the city, and to the bank. Bills of exchange became 
of increased use in all the neighboring commerce, and a vast 
concentration of payments took place at Venice, and in the 
bank. This increase enlarged the capital of the bank. The 
money brought in to pay bills was taken by the government as 
fast as it Avas received, until the amount of the deposit, or debt 
of the state, was adequate, by rapid circulation, to the current 
payments of commerce. This made the bank a great clearing- 
house, or place of adjustment, for merchants of many countries. 
Venice was for centuries the greatest entrepot of commerce in 
Europe, if not in the world. The chief payments or liquidations 
of this trade were efiectcd at the bank. As is the case in many 
great commercial cities of the present day, payments to a great 
amount were thus effected at Venice upon transactions which 
had occurred elsewhere. It wms found, therefore, then as now 
in regard to London, Paris, Hamburg and New York, that it was 
convenient and of advantage to have funds in Venice. The pay- 
ments of bills re([uircd daily such a large sum, that tlie demand 


for funds for tliat purpose was always very great ; and where 
evei'ybody wanted funds, everybody sent them. 

The bank became, then, a place of liquidation ; merchants 
made their bills payable at the point where was the greatest 
concentration of means to pay them, and where it was most for 
their advantage to receive payment. Those who had occasion 
for gold or silver, purchased with these deposits what was re- 
quired ; and, with slight exception, for more than four hundred 
years the precious metals were at a discount, compared with the 
bank funds — the demand for that which would pay bills of ex- 
change being greater than for gold or silver for any special 
use to which they could be applied. The great mass of the pm-- 
chases of commerce were made, in the first instance, by bills of 
exchange ; and the great operation of payments consisted in 
liquidating these bills. The demand, therefore, for the deposits 
in which they were paid was as incessaiU as the movement of 
commerce itself. These bank deposits circulated on the books 
of the bank, therefore, precisely in accordance with the move- 
ments of trade ; and the customers of the bank thus applied these 
credits, or the debts due to them, to the discharge of the debts 
they owed. 



The House of St. George, or Bank of Genoa — Contrast of the financial sys- 
tems of Venice and Genoa — Complications of Genoese finance — Security 
required by public creditors — The system of 1302, and its ofiicers — Pri- 
vate bankers — The Bank established in 1407 — Its large array of officers 
— Deferred dividends, or Mon-eta di Paghe — Famine of 1539 — Deposit 
system — Bank bills — Price of shares — Money and moneys of account — 
Advantages of the Bank to trade — Methods and processes of the'Bank — 
M. Gautier and M. Coqnelin on the moneys of account of the Bank — Cai-lo 
Cuneo on the moneys of Getwa 

The finances of Venice and Genoa present a remarkable and 
instructive contrast. The public loan of Venice, which gave 
origin to the bank, ^vas forced; but the whole subsequent history 
of the bank and the public credit is one of entire confidence on 
the part of the people, and admirable prudence, good faitli, and 
forbearance, on the part of the government. Venice made the 
public debt the chief currency, or medium of exchange, in all 
the large operations of trade ; and the public debt was wisely 
kept at that amount which not only preserved its value, but fur- 
nished the full quantity of currency required for trade, with the 
means of increasing or diminishing the amount, according to the 
proper demand. This mutual confidence and prudent manage- 
ment are creditable alike to the financial skill and intelligence of 
all concerned. The government enjoyed a loan, free of interest, 
equal to the whole capital of the bank, without having given any 
special guarantee, or any evidence of the debt, except an inscrip- 
tion on the books of the bank ; the people enjoyed a currency, 
which for centuries stood at a high premium over gold aiul silver. 
The Bank of Venice, and its public finances, commencing in 



violcnco, soon settled into a simplicity and regularity of progress, 
and freedom from undue fluctuation, of -which, for such a long 
period, there is no parallel. 

The finances of Genoa, commencing with the 13th century, 
furnish a history equally remarkahle, and perhaps equally in- 
structive, although in many respects in striking contrast. The 
turbulence of the nobles of Genoa kept the state, for ages, in a 
condition approaching civil war. In the midst of these violent 
intestine commotions, the financial system of Genoa had its 
origin and growth. The public loans were the spontaneous offer- 
ings of the lenders, who, though willing to lend, exhibited from 
the first no confidence in the mere promises or credit of the go- 
vernment, and exacted most rigidly, from time to time, the utmost 
security and the strongest guarantees the government could give. 
This policy on the part of the public creditors was continued for 
more than a century, until the Genoese system of finance became 
the most complicated, and in many other respects the most ex- 
traordinary, of which we have any account. These public credit- 
ors became a body of great power and influence, governed by 
its own laws, enjoying its own magistrates, privileges and rights, 
wholly independent of the state — in fact, a financial imperium 
in imperio. These privileges were not usurped, but were the 
result of well-considered concessions, which could not be inter- 
fered with by the government, without the violation of many 
solemn stipulations and oaths of oflSce ; and, in fact, they were 
respected for ages, amidst strifes of party, internal and bloody 
dissensions and civil wars, occasional foreign domination and 
mutations of government, which for violence and rapidity have 
never been exceeded. In the midst of all this tumult and rage 
of individual contest and civil war, we cannot adopt modern 
phraseology and say that the public credits of Genoa stood un- 
shaken and unimpaired ; but we can say that the public creditors 
of Genoa held their position and their privileges untouched and 
perfect. They had no occasion to ask or look to the government, 
in these troublous times, for the payment of interest. They had 
provided against that necessity when they lent their money. 
Every loan was secured by the special assignment, on the part 


of the government, of taxes, customs, or other revenue, sufficient 
to pay the interest. This transfer was generally absolute, and 
was accepted in full of the interest ; so that the creditors did 
not always receive a regular rate of interest, but a dividend 
according to the product of the security or fund assigned. 

A complete survey and reconstruction of the Genoese system 
of finance took place in 1302. Various departments of inquiry 
in connection with it were in succession submitted to the con- 
sideration of different committees, or commissions, by the Coun- 
cil of the Ancients ; reports were made, a long deliberation fol- 
lowed, and finally a law or decree of 271 articles was adopted. 
We mention this only as evidence of the attention bestowed upon 
the subject, for we can notice very few of the details of this 
elaborate system.^ The public creditors were chiefly known by 

' The organization of the public creditors, if they can strictly be called 
such who were for the most part purchasers of the public income, consisted 
in part of the following officers : — 

1. Four Visitors, two nobles and two of the people, over thirty years of 
age, and holding estates of not less tlian 300 lires, and not in debt to the 
state. They remained in office six months, having, before assuming the 
office, sworn faithfully to fulfil its duties. They had the aid of four nota- 
ries, or clerks. It was their duty to scrutinize all accounts of other officers, 
to require them to account, to receive their oaths of office, to make at the 
end of the year a report, with a summary of the year's payments and bal- 
ances. All their documents were to be accompanied by their seal (the face 
of St. Michael). Every other public officer was prohibited from hindering 
or interfering with the full exercise of their functions. 

2. Two persons, called Consols, had charge of the office of transfer, who 
had various duties, besides those of seeing to the proper transfer of sliares. 
To these were added, afterwards, two others in the same office, who were 
called Comforters (Confortators), to whom special duties were assigned. 
In 1321, four others were assigned to this office, called Councillors; the 
whole eight constituting the Council of Transfer. 

3. Key-keepers (Clavigeri) had charge of the treasury, or money on 
hand, and made all payments in money. Their whole proceedings were 
subject to a vigorous supervision. 

4. The Judge (Del Giudice del Capitolo), who had jurisdiction of all 
questions arising under the collection of the revenue by the public creditors. 
His acts and decrees were of public validity, and all other courts were 
obliged to acknowledge their force. 


the appellation of compere, or purchasers, for they had in fact 
purchased certain revenues of the government. The loans Avere 
divided into shares of one hundred Urea each,^ a few only not 
being subject to that subdivision, being probably transferable, 
as at Venice, in sums at the pleasure of the holders. 

5. The ViCARio was a judge of still higher authority, having criminal as 
well as civil juriadiction, in matters of revenue, taxes, lines, &e. 

6. Another Judge, holding a special office (Giudice de Calleghe), was 
required to be selected from twenty of the largest foreign creditors, at a 
special meeting held for that purpose. When sitting to decide questions 
to be submitted to him, he was to call to his assistance other creditors, who 
could then vote with him. No one could be offered as security for a debt, 
or for the good conduct of officers, who was not first approved by this Judge, 
The nobles were not received as security. 

7. Farmers of the revenue (Appaltatori). An extensive system of sub- 
letting the collection of the taxes, revenues, customs, &c., was adopted. 
Much of the business of the judges consisted in deciding questions in refer- 
ence to these farmers, and in enforcing their contracts. The rules under 
which they acted, and which they were sworn to keep, were very stringent. 
They were required to make a payment in hand at the time of their con- 
tract, and to give security within the first quarter for the full payment, 
either by an order upon a banker, or by deposit of money or precious 
stones ; and having undertaken a contract, they were not to leave the hall 
until they had completed the preliminaries. They could not sublet their 
contracts without due permission. Their paj-ments were to be made in 
money, or by checks upon the banker who had previously agreed to pay 
their orders. No debtor in default, no member of the Council of the An- 
cients, and no Abbate of the people, could become a Farmer of the revenue. 
Every Farmer in arrear paid five per cent, per month, if in arrear ; and if 
it passed a year, that rate was doubled. 

8. Protectors, whose duty it was to watch that all the laws, regulations 
and contracts respecting the public debt and revenue were duly oliserved 
and enforced. It is a prominent feature in all these offices, that the super- 
vision is very much subdivided, and very much separated from the execu- 
tion of the services, the faithful performance of which they were intended 
to secure. No doubt the need of so many officers was increased by the fact 
that many large cities and territories were among the securities which the 
republic had assigned to the creditors. 

' The lire of Italy had a similar origin with the French livre, the English 
pound — that is, a weight. The term is still used in Milan and Genoa. 
Coins of that name .are now of the value of about fourteen cents ; but what 
their value was in the 13th century, is a subject of research. 


We might greatly prolong the sketch given in the note, of the 
offices pertaining to the public finances of Genoa; but it Avould 
still fail of placing the -svhole system before the reader. In addi- 
tion to the many oaths and securities required of the officers we 
have named, and their subordinates, the chief officers and coun- 
cillors of the republic were required to take an oath to observe 
all laws and contracts toucliing the rights of the public creditors, 
and that they would in no manner, directly nor indirectly, inter- 
fere with the revenues or income pledged for their payment. No 
doubt this vast array of officers connected with the public debt, 
and with salaries depending on the continuance of the system, 
greatly assisted in giving it strength to resist the shock of war- 
ring factions, and the perils of revolution. The parties con- 
nected with this system were strong enough to be feared and 
courted by all sides, and they secured immunity in all circum- 
stances by keeping somewhat aloof from public aiffairs. The 
public creditors, or the compere, were, however, very prompt, 
upon occasions of great public emergency, to come to the aid 
of the government with large sums of money, and other useful 

The reader will be further impressed with the complication 
and minuteness of regulation applied in Genoa to this subject, 
Avhen he learns that the number and kind of books to be kept in 
these offices were all prescribed, and required to be renewed 
every year. The books of every year, as soon as closed, passed 
into another office, out of the hands that kept them. Yet, in 
the most turbulent population of the IMiddle Ages, these minute 
regulations were observed for centuries, and as long as the 
republic maintained its importance. 

There were private bankers of two kinds in Genoa previous 
to, and after the establishment of the Bank of St. George. One 
kind confined their business mainly to transactions connected 
with the public revenue and finance, and to dealing with public 
officers. The other carried on such general banking business as 
receiving money on deposit, changing money, lending money, &c. 
These were placed, by law, under very strict regulations. They 
were required to take an oath to fulfil faithfully the duties of 


their profession. They were sworn not to ahi-ade or clip coins, 
directly nor indirectly, nor to keep young persons in, nor allow 
hangers-on about, the bank ; to write down immediately all 
money deposited with them, by whom, and to whom and at what 
time payable ; to refuse to exchange false money, and to inform 
upon all persons offering suspected coins. They were to make 
known whether the bank was the property of one or many, and 
if there were partners, to make their names known at the office 
of a Tribunal of Commerce, before which they were to enter into 
obligations to comply with the law of banking, and pay all penal- 
ties. The name of each partner was to be posted up in the 
bank, and the amount of his interest. 

Early in the 15th century, murmurs arose among the people 
of Genoa in regard to the financial position of the country. 
After several years' complaint, a commission, or committee of 
eight were appointed, in the year 1407, to report a plan of re- 
form. The commissioners were men who enjoyed the confidence 
of all parties. They found various bodies of compere, or public 
creditors, each holding their own securities, and making altoge- 
ther an injurious complication. The commissioners, after con- 
sulting with the classes concerned, determined upon paying off" 
the whole public debt, and a resumption of all grants and secu- 
rities. To effect this, they proposed to issue shares of 100 lires 
each, in sufficient amount to pay off" the whole, so far as the 
holders could receive payment. To the shares thus issued were 
added some banking privileges, and they were to be secured by 
the reassignment, on the part of the republic, of such part of the 
customs, revenues, taxes and property before held by the com- 
pere, as were deemed adequate, to be enjoyed by the House of 
St. George upon the same terms and privileges, and with the 
same rights and remedies, which accompanied them in the hands 
of the compere. The number of shares to be issued were 4767. 

The Bank of St. George Avas established in pursuance of the 
recommendations of the commission, a further loan was effected 
by the republic, and the measure appeared to find full favor 
with the people. The government had, by this measure, suc- 
ceeded in reducing the interest payable upon the public debt to 


seven per cent. ; any overplus collected from the revenues 
assigned, were payable to a sinking fund (Code di Redenzione). 
The creditors had previously realized nearly eight per cent. 

The Bank of St. George was as watchful of its special interests 
asits predecessors, the compere: besides the general provisions 
by which it enjoyed largely their ancient powers and privile<Tes, 
it obtained not less than nine further concessions during the first 
century of its history, and among these a most distinct and full 
exemption of bank shares and deposits, from all attachment and 
confiscation for any public or private claims, upon any pretence 
whatever. The organization or o;overnment of the bank became 
complicated to a degree even far exceeding that of the compere.^ 

^ The government of the Bank consisted — 

1. Of a General Council of 480 members, over eighteen years of age, and 
holders of not less than 10 shares. 

2. Eight Protectors, sis of whom over thirt}', and two over twenty-five 
years of age, holders of 100 shares. 

3. Thirty-two Electors, who were to select the Protectors. 

4. Four Proveditors, who had served as Protectors. 

5. Eight Procurators, six of whom over thirty, and two over twenty-five 
years of age, and holders of 40 shai-es. 

6. The Council of 1444, so called from the year in which it was insti- 
tuted. It consisted of eight members, qualified as the Procurators. 

7. Eight Councillors of the Salt Impost, with the same qualifications. 

8. Four Vindicators, holders of 40 shares; two of these to be twenty-five, 
the others to be over twenty-two years of age. 

9. Tlie Treasurer-general. He was elected by the Protectors and the 
Council of 1444. He gave security to the amount of 90,000 lires, besides 
a deposit of IGO. His salary, at first IGGO lires, was finally advanced to 
325G, an increased deposit being required. He held his office five years, 
subject to annual confirmation. He was to be over thirty years of age, and 
not allowed to be engaged in any other l)usiness, public or private. He 
was to have no interest in any bank, or any concern of bankers, or other 
persons dealing in money. He could not be a stockholder in St. George, 
nor have an account current witii any oflicer of the same. He was required 
to be in his office with his weigher every morning and afternoon, to receive 
and [lay. He could only receive and pay the coins specified as taken by 
the bank, namely, from the mints of Genoa, Spain, Venice, Florence, and 
Naples, of the weight and at the price fixed by the Protectors: other money 
was taken by the government tariff. Biglietti, for dividends, were payable 
in scudi, at 4.10 lires. Cartulario, or bills for deposit, were payable in the 


The rage for system and regulation was carried so far, that 
■when, upon an extraordinary public emergency, the bank made 
a great effort to assist the republic with money, it resolved to 
pass three annual payments of interest : very little was left for 
the future in the arrangement of the business. The three years' 
interest were each postponed three years, the first year omitted 
being payable on the fourth year, the second on the fifth, and 
the third on the sixth. A new account for these deferred divi- 
dends was opened with the shareholders, and they were duly 
credited with each dividend payable at the time fixed. These 
past dividends soon became as saleable as the shares of the bank, 
the interest being deducted according to the time they had to 
run to maturity. In this way the bank received them for all 
taxes and dues, and the shareholders suffered only the loss of 
the interest on their dividends, but enjoyed the advantage of 
a credit for three years' income, Avhich, if need required, they 
could turn into money at only the discount of current interest 
Upon the occasion of this measure, the ecclesiastical shareholders 
alone hesitated to give their consent : they could not, being, we 

same coin %Yhich had been received. All false money was to be cut. The 
treasury -was never to be without the sum of 24,000 lires. The Treasurer 
kept one of the three keys of the treasury, the Prior another, and the Sin- 
daco of the Compere the third. 

All these officials were elected in modes specially set forth, each class by 
some particular combination of the others held for that purpose. The 
duties of each class were designated, and special oaths and securities were 
exacted. Besides the above, were a host of subaltern officers, of greater or 
less importance, such as Revisora, Fiscal Advocates, Judges, Chancellors, 
Consultors, &c., to all of whom special duties were assigned. 

Oaths, numerous and solemn, were a prominent feature in the govern- 
ment of the bank. They were made upon " the Holy Evangelists (Sacro- 
santi Evangelj)," and after minutely enumerating the obligations under- 
taken, ended with, " So help me God, and these Holy Gospels (Cosi m'ajuti 
e questi santi Evangelj)." There were not only general oaths of office, but 
special oaths for special duties, as they occurred. Some of these oaths 
bound the officers to the strictest silence, in reference to the affiiirs of the 
bank ; and in some cases they were sworn not to make remarks, nor utter 
doubts, nor in any other way to convey anything, from which conclusions 
could be drawn respecting the business of the bank. 

THE FAMINE OF 1839. 319 

may suppose, for tlie most part in the position of trustees, give 
their assent -without Avoundiiig their consciences ;' and applica- 
tion "was made by the bank to Pope Calistus III., who kindly 
authorized the measure, accorded the delay asked for by the 
bank, and saved the consciences of the hesitatinor. 

This system of deferring dividends for three years, but giving 
credit for them in advance, was repeated afterwards ; and again, 
for the sake of the ecclesiastics, the aid of the Pope was invoked 
with success, as appears by a Bull of Sixtus IV., in 1479. Owing 
to special facilities offered by the bank, these deferred dividends 
standing on the books to the credit of shareholders became the 
subject of great traffic. They were much used as a means of 
purchase and payment, under the name of Paghe Scritti, or Lire 
di Paglie, for which there was always a current price, which, in 
fact, constituted a separate money of account in Genoa. They 
were received in the bank, upon terms declared in advance every 
year, as a collateral for money advanced, generally at the rate 
of seventy-five per cent, of their nominal rate. 

In the year 1539 a severe famine occurred, which compelled 
the government to avail itself largely of the aid of the House of 
St. George, as it became necessary to commence and prosecute 
several public works, for the purpose of employing, and in that 
way feeding, the poor. The advances made by the bank resulted 
in a new contract'-' with the republic, by which the most of the 
taxes and customs pledged to the bank were conveyed to it in 
full property. The arrangement was satisfactory to both par- 
ties, and was specially helpful to the bank, by giving increased 
confidence in its shares, and wider credit to the institution. The 
ancient privileges were not only retained, but enlarged. No new 
taxes could be imposed, affecting those assigned to the bank, 
without its consent. The Doge, the Governors, and their suc- 
cessors, were required every year, at the instance of the officers 
of the bank, to swear upon the Holy Evangelists to observe all 

■ "Erano participi nello compere mohi Ecclesiastici e Corporazionc reli- 
giose, no potevansi preridore dcliberaziono in proposito senza timore di gra- 
vare le coscienze." — Carlo Cnneo, p. 110. 

* Maeino Contratto di Consolidazion. 


the covenants and stipulations contained in the new contract, 
the bank paying into the public treasury, every year, 50,000 

Whatever may have been the precise functions of the House 
of St. George as a bank, previous to the year 1673, a great 
change Avas made at that time. Its shares had, before then, 
been largely and freely employed in purchases and payments. 
It had received deposits, and issued bills for them in sums to 
suit the depositor ; and these bills had circulated with great 
acceptance as a substitute for money. The bank had not, how- 
ever, become a great commercial agent. In the year 1G73, after 
a period of tranquillity and commercial activity, the city was 
found to be overflowing with the diverse coinage of Europe, 
Asia and Africa ; the inconvenience became so pressing, as to 
require a remedy. The government of the bank therefore applied 
to tlie republic for an enlargement of its powers and privileges 
The application was successful ; and, after the example of Venice 
and Amsterdam, bills of exchange of any amount, payable in 
Genoa, were made payable at the bank, with all other debts over 
100 lires. This concession to the bank was fortified and enforced 
by heavy penalties. The circulation of the shares, and of the 
bills of the bank was, by this new regulation, freed from many 
formalities and delays previously encountered. The presence 
of a notary was no longer necessary at a transfer of shares or 
deposits, and the bills were circulated simply by endorsement. 

The transfers of shares and deposits soon fell into the simple 
and easy process observed at Venice. The bills, however, were 
a feature of banking peculiar to the House of St. George. They 
were not issued in small amounts, nor in special denominations, 
but in the handwriting of the officers of the bank, and in sums 
requested by the depositors, or persons applying. The business 
of the bank enlarged so rapidly under this policy, that, as some 
writers express it, four banks of the same kind had to be esta- 
blished to meet the demands of trade. Tliis was merely a divi- 
sion of the customers of the bank, by the alphabet, into four por- 
tions, each of which was provided with a separate organization 
of oliicers, clerks, books, &c. ; so that each of these departments 


"was independent of the other, though all were integral parts of 
the same institution. The bank soon became widely and favor- 
ably known : its possession of immense revenues caused it to be 
regarded as one of the richest institutions in the world. This, 
no doubt, increased for a time its commercial power and use- 

Some of the modes of transacting business in the bank 
strongly illustrate the financial caution and skill of the Genoese 
people. Each of the four departments of the bank in Avhich de- 
posits were received, was attended by two notaries, or clerks, 
one of whom credited the depositor, and the other charged the 
treasurer, or cashier, with the sum received ; the treasurer en- 
tered the amount in the depositor's bank-book, or manual. Here 
were three checks upon the amount of each deposit. It was not 
in the power of the two receiving clerks, or notaries, to charge 
the treasurer with more money than was received, nor was it in 
their power to give the depositor credit for more or less than was 
received. Tliere were separate books for the entry of receipts of 
gold, and of silver. There were three separate treasuries : one 
for deposits of coin, which were to be returned, on demand, in 
the very kind deposited ; one for a general depository of gold 
and silver coins at rates fixed by the bank ; and another for 
current coins, at the rates named in the annual table of rates 
published by the government. 

The shares into which the public debt, as held by the bank, 
was divided, were called "luoghi" (places), being for 100 lires 
each. They were transferable verbally, in the presence of a 
notary of the bank, by writing, by will, or by mortgage. These 
shares circulated freely and extensively in commerce, both in 
purchase and in payment. They attained a value far above par, 

' The power of the bank no doubt created apprehensions, which some- 
times found expression, in despite of its repressive influence. Foglietta, an 
historian of Genoa, says that this banlc " became a body of the richest citi- 
zens — a repuVjlic more potent and terrible than its mother. It began to 
bo feared that the bank would swallow the republic ; that is, that the 
republic would reappear as a bank, after having been swallowed as a 
republic." — Econoinisti Italiani, Parte Moderna, vol. viii., p. 3G0. 



and held it for a period of more than two centuries. In an 
elaborate table,' taken from the books of the bank, by Carlo 
Cuneo, the rate of the dividends is given from the year 1409 to 
1800, and the price of the shares, from the year 1559 down to 
the same year. The shares were at 48, in 1559 ; in 1582, at 
112; ill 1606, at 219; in 1621, at 278. This advance was 
attended with many and wide fluctuations : the rate continued 
to vary between 140 and 200 down to 1739, after which the 
quotations are in scudi of 4 lires 4. In 1740, the quotation is 
30 scudi, Avhich is still over 25 per cent, above par : the rate 
fluctuates, down to 1797, between 20 and 34 scudi; in 1798, 
it is at 8, and in 1800, at 4. The same table furnishes the price 
of the deferred dividends (valute delle paghe) from 1559 to 
1764. They are singularly free from fluctuation. Being much 
employed as a currency, this steadiness of value must have 
been a great recommendation. 

The money of Genoa, during the period in which the bank 
flourished, although understood practically by those who were 
immediately conversant with it, Avas a mystery which Avriters 
of history did not penetrate. The only reliable account of it 
now is in the works upon exchange, book-keeping, upon the value 
of coins, such as merchants' guide-books, bankers' assistants — 
"Works not rare then, in various forms, from heavy folios and 
quartos to light books for the hand. When the history of money 
is properly written, these books must furnish the materials. The 
occasional references to this subject by historians are, for the 
most part, wholly unsafe. Such a system of moneys of account, 
coins and currencies as existed at Genoa could never be under- 
stood without special initiation even by contemporaries, much 
less by those who look back at it from the distance of half a 
century. It would require far more space than we can give to 
attempt an exposition of the subject, and far more figures than 
the reader Avould care to look at. Such an examination would 

' This table may be found at pages 307 to 311 of "Debito Pubblico di 
Genova." The abstract was made, the author modestly intimates, " non 
senza fatica." 

• T II K BANK S II A RES. 823 

not, however, be without its profit to the real student of the 
theory and usages of the money system. 

The currencies of Genoa were of several kinds : — 

1. The bank shares, consisting each of 100 lires of the public 
debt, as held by the bank. It was, in fact, by the constitution 
of the bank, rendered a bank stock. Tliis circulated with almost 
as much facility as a bank deposit. It became the foundation 
of a separate money of account, in which the value of the bank 
shares were ever after expressed. This money of account be- 
came fixed at the point when the shares had risen to a rate 
about twenty-five per cent, above par. Bank money (valute banco) 
was then always rated at about twenty-five per cent, above the 
common currency. The bank shares went up, subsequently, to 
nearly three hundred per cent, above nominal par, and were 
quoted accordingly : but the money of account called bank 
money never varied. It became a reliable register of the values 
to which, by the custom of merchants, it w^as applied. It was 
as readily used to express the value of coins, and other cur- 
rencies, as it w\as to state the value of the bank shares. The 
bank also issued bills in the denominations of this money of 
account, which served as a currency of the same nature as the 
shares, but current out of the bank by means of these bills. It 
is probable they were issued upon the liypothecation of shares, 
whicli were redeemable upon the return of the bills. These were 
used to some extent in the early history of the House of St. 
George, but were less used when the business of the bank was 
enlarged ; and deposits, with bills issued for them, came into 
use as a currency. 

2. The bank deposits being transferable with facility, were 
employed largely as a currency in the chief transactions of busi- 
ness. The bank bills issued for deposits were also used exten- 
sively as a currency, but to what extent, as compared with the 
deposits, we are not informed. These deposits and bills repre- 
sented coins of full weight and value, and were payable on de- 
mand in such coins. The coins themselves were not a currency, 
but an article of merchandise. The madonines of Genoa were 
probably the only coins taken by their face, without weighing 


and assaying ; but they were subject to fluctuation in the mar- 
ket, and those who needed them were obliged to pay tlie current 
price. Coins of gold and silver, from the mints of Genoa, and 
coins of gold, from the mints of Spain, A^enice, Florence, and 
Naples, were taken on deposit at a rate fixed by the protectors 
(officers) of the bank ; and other coins at the rate fixed by the 
tariff of the government. All these were convertible into cur- 
rency by being deposited at the rates fixed by the bank. A 
money of account was formed upon these deposits, in which their 
value or price was regularly expressed : it remained constant, 
Avhatevcr fluctuations occurred in coins or bullion. This money 
of account, called moneta di permessi, expressed in lires, with 
that prefix, denoted a value of the lire about fifteen per cent, 
above ordinary currency. The duties payable at the custom- 
house, and other public revenues of the bank, were all estimated 
in this money of account ; and the books pertaining to them, 
and the money in the treasury of the bank, were kept in it. 

3. Another currency of Genoa was the deferred dividends of 
the bank. A credit for these dividends was regularly entered 
to each shareholder for three years' dividends on each share. 
The par of these credits Avas 21 lires for each share. This was 
subject not only to the discount of interest, but to such further 
discount as the course of the market might impose. The market 
value, subject to variation of interest according to time of pay- 
ment, in 1559, was 14 lires 4s. In the course of a century they 
rose to 17 lires. They stood subsequently, for a century, at 18 
lires. Upon these, as we have already said, a money of account 
was formed which expressed, in lires di paghe, the varying value 
of these credits according to the time they Avere payable, and 
the state of the demand for them. They Averc receivable by the 
bank for all demands, at a rate fixed every year, Avith deduction 
of interest according to time. The people of Genoa avcU under- 
stood AA'hat Avas meant, Avhcn moneta di paghi Avas spoken of; 
and this currency Avas as acceptable as any other, because it was 
taken by the bank not only in payment, but as a security, ad- 
vances at the rate of seventy-five per cent, being made upon it 
at all times. The bank could ahvays regard it as a faA'orite cur- 


rency, because it was a debt of the bank ; and receiving it was 
extinguishing a debt in advance at a fair rate of discount. Lires 
di paghe were always above par in the common currency. 

4. The common currency of Genoa, in which retail business 
and many other transactions were carried on, were the usual 
circulating coins of gold and silver, a large portion of which 
were much worn by use, or which had suffered from paring, plug- 
ging, sweating, and other modes of abstracting from tlic value 
of coins. This money had also its separate money of account, 
called fuori banco, or out-of-bank money. The coins to which 
it referred were in all states of deterioration, though taken for a 
time, even after they had lost a part of their weight, at their 
nominal value. The money of account which supervened upon 
the use of these abused coins, took a lower standard for the lire 
than the other currencies. It became, however, a real, though 
less permanent money of account. In it the prices of retail 
trade were expressed, and generally all the common transactions 
of life not connected with the larger movements of trade, or with 
the bank. It was the ordinary money of account : when the 
others were used, their specific name was frequently mentioned ; 
and people were generally supposed to express amounts in fuori 
banco, unless there was something to show the contrary. It in 
no way appeared on the books of the bank, though no doubt the 
books of account of the distributing merchants, tradesmen, and 
shopkeepers, were wholly kept in it. In their books all other 
currencies were reduced to this money of account. 

The advantage of the bank to the commercial community in 
which it was situated was very much the same which wc have 
already specified in regard to the Banks of Amsterdam, Ham- 
burg, and Venice. We need not repeat the benefits of avoiding 
hazards and troubles in making the large payments of com- 
merce in coin, nor refer again to the rapid circulation attained 
by transferring the ownership of coins, instead of the coins 
themselves, in the payments of trade. We need not even advert 
at length to the lesson taught by this mode of payment, that it 
is not essential to a payment that coins or bullion should be 
seen, handled or touched, to make effective payments ; and that. 


therefore, neither coins nor bullion are of the essence of a pay- 
ment ; and that, however necessary it is that payments should 
be complete, satisfactory and irreversible, yet these requisites 
are all fully attainable without actually employing the precious 
metals in any shape ; and that, in fact, abundant employment 
can always be found for the precious metals, when every device 
to avoid their use in commerce is exhausted. 

The Bank of Venice made one important step in advance 
of its contemporaries : it circulated the ownership of a claim 
upon the government, or of coins on deposit ; the Bank of Genoa 
not only circulated both, but first resorted to the use of bank 
bills. This was not done, it is true, in the improved and conve- 
nient forms now in use ; they were not issued in denominations 
of thousands, hundreds, fifties and fives, but merely in such sums 
as were required by those who took them. They were, besides, 
only negotiated or passed by endorsement ; yet, with all this, it 
was a long step in advance, and furnished to the commercial 
community a most effective instrument of payment. We are well 
informed that the bills issued by the bank were much employed, 
but cannot now ascertain whether they were issued in small 
sums. We believe they were chiefly employed in large transac- 
tions, A deposit of gold or silver entitled the depositor to a 
bank-note, or notes, for the sum ; the holders of shares in the 
bank w^re also entitled to bills, upon some terms not fully ex- 
plained, but probably constituting a form of circulating the 
shaves out of the bank, which were otherwise only transferable 
in the bank. Bills were issued upon the deferred dividends, 
reduced to their value. These several forms of bills performed 
large service as currency, in connection with the bank shares, 
and the deposits in the bank. All these were at a large pre- 
mium over the remaining circulation of coins called fuori banco 

If the payments of a great commercial city like Genoa had 
been made in coins, there could have been no escape from the 
use of mules and carriers, with an army of expert tellers. Various 
plans of avoiding the risk, trouble, delay and expense thus en- 
countered, had at different periods been adopted : this of bank 


bills was first resorted to in this instance, and with such success, 
as to afford great satisfaction. It was found to be a rapid, safe 
and efficient means of payment. The principle upon which this 
proceeded was soon understood ; it was not essentially diff'orent 
from that which governed other modes of payment. Amounts 
payable and receivable could only legally be discharged in coins, 
or other legal currency ; but debtors are only anxious to be 
acquitted of their obligations in any manner that shall be effec- 
tual, satisfactory and creditable. They do not necessarily ask 
or exact payment in coins ; they are content to receive what 
they find others are willing to take. In Genoa, the merchant 
who had money to receive was quite willing to take bank bills, 
because those to whom he was under engagements were quite as 
willing to receive them from him. When a bank bill of 10,000 
lires had thus passed into his hands, and from his hands into 
those of another to whom he was in debt, it had made two pay- 
ments of that sum, and discharged debts to the amount of 20,000 
lires. This was not in virtue of any intrinsic value in the paper 
bill, but because it had been accepted in payment by one, and 
received from him in payment by the other. So, if the bill had 
been an undetected counterfeit, it might have passed through an 
hundred hands, each time making as perfect a payment, and 
effecting as complete a discharge of the parties, as by any other 
means. ^ The process is the same as if each creditor should say 
to his debtor, at the time of payment: " I will acquit you of the 
ten thousand you owe me, if you will furnish me the means of 
discharcfins that amount which I owe to others." It matters 
not, to the validity of the payment, whether that debtor delivers 
to that creditor a bag of coins containing the required quantity, 

' We are very far from thinking that spurious money can make as safe, 
or as good a currency, as genuine. It is a fiict, however, to which wo need 
not shut our eyes, that there is always a considerable amount of counterfeit 
money in circulation, performing the office of good money. The best coins 
need to have credit accorded to them, or they cannot circulate as money ; 
if that credit is, from ignorance or mistake, given to bad coins, tiiey will 
"fulfil the functions of money. Coins should be good, that they may deserve 
and continue to enjoy the credit which is essential to tiicir continued use 
as coins. 


a bank-note of the amount, or a paper giving him a right to a 
credit with those to whom he is bound to pay a like sum. 

The circulation of bank bills was a method in detail, by which 
those who kept no direct account with each other could set-off 
their credits against their debts, or apply the one in discharge 
of the other. Each one who received a bank bill in payment, 
and had transferred it away in payment, had made an entry on 
each side of the general account of his debits and credits, and 
had to that extent balanced the account : every succeeding 
operation of the same kind was with the same effect, and thus 
the entries made progress as time elapsed, until the balance 
remained which would have resulted if the whole proceedings 
had been a mere act of book-keeping. What was thus done by 
one, Avas done by all, and the process of liquidation proceeded 
as men's liabilities matured. It cannot bo questioned that bank- 
notes have some advantages over transfers of bank credits: they 
circulate everywhere, and at all times ; in bank hours, and out 
of bank hours, day and night ; in country and city, between 
those who have bank accounts, and those who have none ; be- 
tween the poor and rich, foreigners and citizens, without forma- 
lity or loss of time, and without intervention of notary, or proof 
of identity ; and of course no medium of exchange, so far as 
they are applicable, has ever been found more convenient and 
effectual. The Bank of Genoa, by thus fully exhibiting the ad- 
vantages of bank-notes, may be considered as the link which 
connected the deposit banks with those of circulation. The 
range of usefulness, however, of bank-notes is far less than that 
of deposits : the convenience of the former, to a certain extent, 
is undoubted ; but the larger payments will always be made by 

Although the House of St. George was inferior, in importance 
and commercial utility, to the Bank of Venice, it was a vast 
concern, of great power and wealth, Avhich enjoyed for a long 
period high confidence in Europe. Genoa was a free port, so 
called; that is, an entrepot where goods could belauded, stored,, 
assorted, and reshipped to any part of the world, without paying 
duties ; but all goods passing into consumption in Genoa were 


subject to duties collected by the bank, which had also the reve- 
nue arising from several hundred storage-houses situate within 
the enclosure of the free port, and other similar perquisites. 

The Bank of Venice, resting wholly upon the stability of the 
republic, and its own good management, had a career of com- 
mercial success and high credit of more than five hundred years; 
but perished utterly with the Venetian government, offering, 
however, not a penny as a prey to its destroyer. The Bank of 
Genoa having a vested interest in a large real estate, and in the 
revenues of the port, survived the shock and the ravages of the 
French invasion ; but shorn of its importance, its credit, and 
of nearly all its Avealth, which became the prey of a French 
army. If the administration of the House of St. George had 
been directed chiefly to commercial utility, under wise arrange- 
ments, its constitution would have been consistent with great 
efficiency. It might easily have been placed in the same rank 
with that of Venice. The exterior circulation of notes issued 
for deposits was an advantage not enjoyed at Venice. In the 
latter city, however, the process of adjustment was better under- 
stood, and therefore more directly practised. It was carried to 
the utmost point of commercial convenience, and the resort to 
payment in coins was only when special reasons made it neces- 
sary ; as when coins were required for exportation, or in dealing 
with foreigners, or for the retail trade. In Genoa, the circula- 
tion of bank-notes was mainly a mere substitution of the notes 
for coins, by which, indeed, a greatly increased activity could be 
given to the circulation ; but the coins were lying, in the mean 
time, unemployed. This bank-note circulation cost the interest 
of the coins on which it was based. In Venice, the government 
took the coins brought to the bank, and applied them to the 
public service, and to that extent lessened tlie necessity of taxa- 
tion, and strengthened the state, which was the guarantee of 
the bank. Both these banks were highly prized in their respec- 
tive cities, and of great reputation abroad ; both maintained 
their standing and usefulness longer than any other hanks have 
ever done ; but iu each respect, the Bank of Venice takes pre- 


In an article on banks, in tlie " Encyclopsedia of Law" 
("L'Encyclopedie du Droit"), M. Gautier, speaking of banks 
founded in imitation of that of Venice, remarks, "that in creating 
them they established for their use a fictitious money, or money 
of convention, of fixed value, and usually higher than that of the 
current money in 'which their payments and receipts were made, 
and their accounts kept, by means of an agio varying between 
one and the other." 

In remarking upon this, the able author of the article on 
banks, in the "Dictionary of Political Economy," M. Coquelin 
asks : "And why this adoption of a fictitious money in the most 
part of the banks instituted at that period ? Is it explained 
by the circumstance, that the deplorable abuse of debasing coins 
was then very frequent in most of the States of Europe ; and 
that, however the Republics in which these banks were esta- 
blished had avoided these abuses, by the relative wisdom of their 
administration, they were yet not safe from the invasion of de- 
based coins thrust upon them from abroad, thus deranging their 
commercial transactions ? It was to give to these transactions 
a safer basis that the banks adopted an ideal money, which was 
secure from all alteration. 

" When coins of gold or silver were paid into one of these 
banks, it reduced them of course, after an assay having for its 
object to show the quantity of fine metal which they contained, 
into the ideal money of which it had made choice, giving to the 
coins, however, for greater safety, a value somewhat less than 
they had in reality. 

" This substitution of an ideal money for the current money 
is, perhaps, the greatest service which these ancient banks of 
deposit have rendered. By this means they have at least intro- 
duced security into their commercial relations, and endowed the 
cities in which they Avcre situated with a sort of relative credit, 
very superior to that enjoyed by others. Add to this that, in 
permitting merchants to effect their payments and their receipts 
by the simple method of writings, they saved them in a certain 
degree from the care and expense which ordinarily attend the 
handling and the transportation of coins. With this exception, 


they have fulfilled no essential functions which belong to banks, 
as we regard them at the present day." ' 

These remarks, by writers of high intelligence and authority, 
furnish striking instances of the confusion which must prevail in 
the minds of those who treat of money, without duly attendinf^ 
to the distinction between money and money of account. M. 
Gautier, who was for a time President of the Bank of France, 
saw clearly that the business of the Bank of Venice was done by 
means of a money of account, which he calls a fictitious money, 
or money of convention. He inferred, erroneously, that it was 
established or agreed upon solely for the purposes of the bank. 
It was not established by any act or agreement of the state or 
people; it was not even contemplated, nor thought of; it was 
the growth of circumstances. In its nature it was not new ; for 
all the coin and money in previous use, and all articles of com- 
merce, had tlieir prices expressed in one or more moneys of 
account then in use. It being the invariable habit of people 
familiar with prices, and the expression of values, to fix the 
denominations in which they are expressed independently of the 
coins, or other values, from which they take their origin, firmly 
and fully in their minds, the people of Venice, in a very few 
months or years, became perfectly familiar with the current value 
of the deposits of the Bank of Venice. They would soon cease 
to make any comparison between the denominations in which the 
value of these deposits were expressed and coins. They would 
have learned their value, independent of any such comparison. 
If it happened that nothing in the conduct of the government, or 
those controlling the bank, disturbed the estimate made of the 
value of these deposits, the money of account founded upon them 
would be fixed. While coins without wore subject to deteriora- 
tion in many ways, and to debasement on the part of governments, 
and therefore to fluctuation in price, the deposits would remain 
unchanged ; and the money of account founded on them would 
become more firmly fixed in the minds of those who were con- 
stantly employing the funds of the bank in their current payments. 

> Dictionnaire de Econ. Politique, Paris, 1852, Art. " Banquo.'' 


The explanation of M. Coquelin is still more unfortunate than 
the position of M. Gautier. It is really very careless, if not ex- 
travagant, to say that the chief service rendered by the earlier 
banks of Europe Avas the employment of this ideal money (mon- 
naie ideale). It is certainly to the credit of Coquelin, that he 
perceived and appreciated the use of these moneys of account ; 
but how could he fail to perceive their universal use, if he really 
understood their application in those banks ! The reason he 
gives why the banks ever resorted to their use is nothing to the 

The bad state of the coins, and the debasements of the coinage 
by public authority, "vvere inducements to the establishment of 
the banks, but had nothing special to do with the ideal money, 
or moneys of account, which grew out of the usages of the banks, 
and the mental habits of a commercial people. The agency of 
these moneys of account in the commerce of that period must 
have struck the mind of Coquelin with great force, to have in- 
duced the remark we have cited : it only needed that he should 
open his eyes a little more, to see that the service rendered by 
moneys of account in that day have been far transcended by 
their agency, in later times, in all banks, and in all the transac- 
tions of the credit system, of which they are the chief instru- 

To exhibit still more evidently the difficulty of explaining the 
money of Genoa by those who do not observe the distinction be- 
tween money and money of account, we subjoin the following 
long extract from the most elaborate work upon the finances 
and Bank of Genoa Avhicli has come to our hands. We quote 
from a chapter, the title of which is : " The different kinds of 
money used at the Bank of St. George." ' 

" In a city like Genoa, essentially addicted to commerce, the 
increase (I'aumento) to which the effective money Avas subject, 
in the progress of years, could not be overlooked in the payment 
of debts of long standing ; and, in fact, we find that a law of the 

' Memoire Sopra I'antico Debito Pubblico, Mutui, Compere e Banco di S. 
Giorgio in Genova. Dell Carlo Cuneo. Genova, 1842, 8vo., chap, xxvi., 
p. 127. The author was Inspector of the Royal Archives. 


republic, bearing date 1G37, recognizes this obligation in regard 
to ancient debts.' In the Bank of St. George, however, where 
they -were always careful to observe equality and justice in the 
payment of their dividends, they always calculated the increase 
which, in the lapse of time, had taken place in the lire gianuina; 
and, therefore, they always reduced the lire gianuina to the 
value it had at the time the payment was to be made. In this 
way, it was found that the hundred lires di numerate, or gianuina, 
of which the bank share was originally composed, Avas valued in 
progress of time at lires 194.4 fuori banco money." Such an 
increase, however, is not to be confounded with the value of the 
share in commerce, which, besides the ' above increase, was 
greater or less, according to the greater or less credit of the 
bank in public estimation, as happens now every day with the 
current price of the public funds. 

The moneta di paghe was, in substance, the value of the paghe 
written in moneta di numerato, reduced as above into moneta 
fuori banco. It was of somewhat less value than moneta di nu- 

' Tlic increase here intended is not of the quantity of the money, but the 
price. It is notorious, however, that during the whole of the 15th, IGth and 
17th centuries, the value of silver was declining. There was, strictly, no 
such increase as the words of the author import. He, no doubt, refers to 
the fact 'that the money of account had changed, as it did in England, and 
every European country. The lire of the money of account expressed a 
less value, in the progress of time, than it had done before. The lire of the 
money of account in 1550 expressed a very different value from that of 
1050. A specific coin or weight of silver was nominally of greater value, 
because the word lire, in which values were stated, expressed a less value 
iu 1650 than in 1550. So, in England, a shilling once denoted the equiva- 
lent of the 2>j of a pound of silver; now it only denotes g^ of a pound of 
silver. The increase spoken of by the author was a depreciation of the 
money of account consequent upon the abuses of coinage by public autho- 
rity, by wear of coins, and by frauds, as occurred in France and p]ngland. 

^ The author is more happy in stating what was done by the bank in the 
payment of dividends. Tlio shares consisted originally of lOU lires, as they, 
were coined in 1407. In declaring tlie dividends two centuries later, they 
reduced the value of that coin to its true rate or price at the time the divi- 
dend was declared. This was done by the money of account used iu the 
bank, which had not followed the fluctuations of the money of account fuori 


merato reduced into moneta fuori banco, because, as we have 
shown, the written paghe did not become numerato until four 
years ; therefore, the written moneta paghe was subject, in com- 
merce, to a discount greater or less, according as the paghe were 
of the first, second or third year/ 

" The moneta di banco and fuori banco did not then proceed 
from any special operation or purpose of the Bank of St. George,^ 
but, as we believe, from a continual inspection of the different 
money-tariffs published by the Magistrates of Money. Their 
origin seems to have been in this way : — 

" The republic, by the above cited law of the 19th of Septem- 
ber, lt)o7, so much extolled by Carli in his great work upon 
money, legally established, perhaps before any other nation, that 
as gold and silver coins were subject to a progressive increase in 
their current value, it was necessary, not to offend justice, that 
ancient debts should be paid by reducing the value of the money 
or coins of the time in which the debt was incurred to that of 
the time in which the payment was made.^ Hence, the money- 

' This very obscure explanation could only be comprehended by those 
who already understood the subject. The fact was, that the constant use 
of these paghe, or deferred dividends, as a currency, established for them a 
specific unit, or lire of specific value, which became the basis of a money 
of account. In this money of account their value or price was alwa^^s ex 
pressed, and they were reduced to other moneys of account, according to 
the use made of them. If used out of bank, they were turned into money 
fuori banco; if paid into the bank, on account of revenue, they were con- 
verted into moneta di numerato; if employed in the purcha.^e or redemption 
of bank shares, they would be converted into moneta banco. The value of 
these paghe, whether of the first, second or third year, was always expressed 
in their own money of account. 

■■^ These moneys of account did not proceed from any special plan or in- 
tention of the bank ; their origin was that slow and silent, but sure opera- 
tion, by which moneys of account are alwa3's furmed in a mercantile com- 
munity, when a new unit of value is used, in which prices are expressed 
'and payments are made. The lire, or scudo, as applied to the bank shares, 
to bank deposits or coins of full weight (moneta di numerato), to the paghe 
or deferred dividends, were such new units ; and upon each a money of 
account was formed, in which the books of the bank were kept, each in 
their respective department. 

^ Here we have a public law of Genoa cited as recognising that gold and 


tariifs were specially intended, in Genoa, to give notice every 
year, or every six months, of the value of the silver scudo at the 
time in which the publication was made. Prior to 1730 we have 
not succeeded in finding any money-tariff in which the distinc- 
tion is made between moneta di banco and moneta fuori banco ; 
but in the said statute we find a statement concerning the money 
of Genoa, which indicates the value of the scudo from year to 
year, down to 1681, when it was lires 7.12. 

" It seems that, after this period, the Magistrates of Money 
believed it to be their duty not to permit any increase beyond 
that rate, since there are extant some decrees made by these 
magistrates, in which they threaten with the penalties of bank- 
ruptcy those who exchange money at a higher rate than that 
fixed in the tariff; and from 1682 to 1730, we have met with no 
tariff in which the value of the scudo is i^laced higher than 
lires 7.12. 

"We cannot state with precision the reason why the Magis- 
trates of Money believed it to be their duty to maintain, for so 
long a time, the value of the scudo at lires 7.12. We find, how- 
silver coins were subject to a progressive increase of value — a statenaent 
which can only be true as the price of these metals was expressed in a 
changing money of account. Carli, the eminent writer on money quoted 
in tliis paragraph, supplies a remarkable explanation of this difficulty when 
treating of the money of Milan. He informs us that the apparent increase 
of the zecchin of Milan in five centuries, from 12G1 to 1750, was as 1 to 
14.10: that is, that coin during all that period, of the same weight and 
standard, was quoted, in 12G1, as worth 1 lire; and as worth lires 1-4. 10s. 
in 1750. He gives, no doubt, the correct explanation. Prices were ex- 
pressed in lires and denari, or pennies, which was the common money of 
.account. The payments of retail were made in copper and billon, or other 
base money, or at least to such an extent, that the value of the lire was esti- 
mated, by the mass of the people, through this base money. In the five 
centuries mentioned, the base money was degraded by the government very 
nearly in the proportion of tlie apparent increase of the zeccliin. Carli says 
there were many opinions on the subject ; but he sustains his own in a way 
to leave no doubt of his correctness. We believe this is the true explana- 
tion for Genoa. The ordinary money of account, in this long series of 
years, was changed by the degradation of the lower coins, which the people 
handled most. Economisti Ilaliani, Carli, vol. ii., p. 12. Custodi's Coliec- 
iion, Modern Part, vol. xiv. 

336 DEPOSITS WITH a premium. 

ever, that these magistrates, in the tariff of the year 1741, per- 
haps for the first time, distinguished the moneta di banco from 
the moneta fuori banco, giving to the silver scudo the value of 
lires 7.12 in moneta di banco, and the value of lires 9.10 in 
moneta fuori banco. 

" From this wc believe it may be inferred that the Magistrates 
of Money fearing, perhaps, that the continued increase in the 
value of the silver scudo would prove injurious to the Bank of 
St. George, determined to put an end to that increase by means 
of their annual tariffs, and to keep it at the rate of lires 7.12. 
But as the force of circumstances proved stronger than the 
power of the magistrates, they Avere obliged to abandon this 
idea, and to fix the scudo in moneta di banco at lires 7.12, which 
was the value at which they received and paid it at the Bank 
of St. George, and in moneta fuori banco at lires 9.10, which 
was the value in commerce. 

" The Bank of St. George, however, in 1751, looking more to 
its own convenience, and seeing that the difference between the 
moneta di banco and that of fuori banco had gone up already to 
a premium of twenty-five per cent., determined that from that 
year deposits of money should be made in the bank in moneta di 
banco, at a premium of twenty-five per cent., and that they 
should be repaid at the same premium. 

" The moneta di permesso enjoyed only a premium of fifteen 
per cent, over moneta di banco, as we find from the tariff" of 
1755. We cannot give any account of the origin of this money? 
since precise dates are wanting for that purpose ; but as we find 
in the published tariffs that there were current many scudi much 
worn, which were permitted to circulate at a value, in moneta 
fuori banco, less than lires 9.10, it is probable that from this 
permission the moneta di permesso had its origin.' 

" We have not intended, by these observations, to furnish any 
definitive system of the moneys of Genoa, but present them as 

' It is not material for our purpose to expose the very serious errors in 
this paragraph. They are so great, as to create the suspicion of a misprint. 
The next paragraph discloses that the author had no great confidence in 
this portion of his labors. 


our opinions, in the liopo of exciting ulterior researches upon 
this subject ; and as a learned lover of tlie history of his coun- 
try, George Batta Gandolfo, librarian to the University of 
Genoa, is collecting precious materials concerning the money of 
Genoa, with the view of preparing an extensive work, which can- 
not fail to be of the highest interest, we hope much time will not 
elapse before we shall have, upon this subject, statements and 
explanations sufficient to make the whole matter entirely plain." 


If the woi-k of G. B. Gandolfo has ever seen the light, it has not Leen our 
fortune to meet with it. There are, however, materials in abundance within 
reach of any one desirous of thoroughly understanding the money system 
of Genoa. They will be found in the works cited ante, pages 186, 187, 
and in others of like character. From the contemporaneous works on com- 
merce and money, to which the bankers and merchants of that time resorted 
for guidance, we can now obtain reliable information ; and by the study of 
these merchant's guides, in the order of time, the history of Genoese money 
may be traced. Italy has furnished, besides, many great works on money, 
being famous for the worst coins, and the best writers on coinage : among 
these we refer to some of the more distinguished : Davanzati, Serra, Tur- 
bulo, Galliani, Corniani, Scaruffi, Carli, Yasco. A reference to others may 
be found in the note at page 108. 

Although Carlo Cuneo, from whom we have made the long extract at the 
close of this chapter, has failed in adequate statement and appreciation of 
the moneys of Genoa, his work, as a whole, is invaluable, and furnishes de- 
tails which can nowhere else be found, without researches which very few 
have it in their power to make. The Bank of St. George, doubtless, yet 
contains all the documents needful to afford materials for its history ; but 
it seems they are guarded with a jealous care, which places tiicm out of the 
reach of the ordinary inquirer. Cuneo furnishes a reference to his autho- 
rities, which shows that his researches were thorough and extensive. The 
Appendix gives fac-similes of three difierent forms of the manuscript bank 
bills issued by the Bank of Genoa. 

The following is from a Commercial Dictionary published in Paris : — 

"La Banque de Genes date de 1407. C'etait aussi une banque de d6p0t, 
mais dtablie sur une plus grandc echelle que cclle de Venisc, ct qui a ob- 
tenu beaucoup plus de c616brit6 en Europe. Son funds primitif fut com- 



pos^ de proprietes domaniales, appartenant h I'Etat et adniinistrees par une 
corporation qui devint plus tard le conseil et le gouvernement de la banque. 
On pcut la considerer comme un grand mont-de-piete commercial destin6 k 
faire des avances aus citnyens, moyennaut certaines conditions plus ou 
moins favorables, selon les circonstances. Elle etait administree avec une 
extreme severity et tout ce que nous savons de son organisation prouve 
qu'elle fut plutot une institution financifere li6e aux interets du gouverne- 
ment, qu'une caisse ouverte aux besoins des particuliers. Elle re(}ut un 
terrible 6chec lois de I'invasion des Autrichiens vers le milieu du dernier 
sifecle, et elle a cess6 d'exister avec la republique de Genes." — "Diction- 
naire du Commerce, GiUaumin & Co., Paris, 1839, vol. i., p. 210, Art. 
"Banque." ^ 

This is calculated to mislead. The Bank of Genoa was only on a larger 
scale, because more connected by its constitution with political affairs. 
Holding among its guarantees such possessions as Corsica and the Isle of 
Cyprus, and having, by its large number of officers, a strong voice in the 
government of Genoa, it drew the attention of all concerned in the public 
affairs of that city. In commercial power and efficiency it was far inferior 
to the Bank of Venice. This extract is another illustration of the mistaken 
notions which prevail, even among well-informed persons, in relation to 
the Banks of Genoa and Venice. 



^ 1. Opinions and projects on the subject of credit and currency previous to 
the charter of the Bank of Eii(/hind — Samuel Lam he's plan, IGGo — Evils 
of the coinage — Dr. Hugh Chamberlain's p>Ian, 1605 — Large model of a 
Bank, 1618 — Bank of Credit, 16S2 — Bank of Credit, ICm — B.Mur- 
rafs plan, 1G95 — /. Asg ill's plan, 1G9G — Office of credit, 1698. 

The insular position of Great Britain preserved the people, in 
some degree, from some of the mischiefs and vexations of a mul- 
titude of mints, and a multifarious coinage. The annals of 
English commerce show, however, that grievances arising from 
their coinage, even subsequent to the period of the heptarchy, 
were by no means insignificant. We might illustrate this by 
citations from writers of every age from William the Conqueror. 
Matthew Paris, in his "Chronicles," says that "in those days 
the money of England was so intolerably abused by detestable 
clippers and false coiners, that neither the English inhabitants, 
nor even foreigners, could look upon it without being deeply 
grieved (illceso corde) ; for it was clipped almost to the inner- 
most ring, and the border of letters either wholly taken away, 
or very much diminished."' — Ad annum, 1248, 32 Henry III. 
^^Ipsis quoque diebus Bloneta Anglicos, cj-c." In the reign of 
Elizabeth, a reform of the coinage, arising from these and simi- 
lar abuses, was undertaken; and in the " Summaric of Certain 
Reasons" for the measures then adopted, wc are informed that, 
" for these base monies, there has been carried out of the rcalme 
the rich commodities of the same, as wolle, cloth, lead, tinnc, 
leather, tallowe, yea, and all kinds of victual, as corne, salt, 

' See Diseases of Coin, 169G. 


340 LAMBE'S bank, 1657. 

beer, butter, cheese, and sucli like, so as counterfaieters have, 
for small summe of monies, carried out six times the value in 
commodities of the realme." 

Among the earliest advocates of banks in England whose 
works are before us, is Samuel Lambe, a well-known London 
merchant, who lived in the days of Charles the First, but did 
not publish the pamphlet we are about to notice until the year 
1655, in the time of Cromwell, to whom it is thus addressed : 
" Seasonable Observations humbly addressed to his Highness the 
Lord Protector," ^ One of his chief objects is to show the advant- 
age the Dutch people had over England, by reason of their banks : 
" The benefits they have received by banks are these : By the 
help thereof they have raised themselves from poor distressed, to 
high and mighty States. They have increased the general stock 
of their own country so much, that they can, when they please, 
ingress the particular commodity of one country, and sell it 
again at their own price in the same, or another that wants it : 
they furnish many facilities, as well as profits, in time of war: 
they have thus grown so strong, that they make peace with other 
nations on their own terras, as, for instance, Denmark and 
France : they make war with the English at sea, to whom they 
there always yielded : they rule over many petty powers in the 
East Indies." 

" The prejudice we receive by banks are these : It bi'ings 
down the interest of money to three per cent., at which rate 
men in Holland borrow money, and lend it again in England at 
six or eight per cent. : they furnish money to make purchases in 
England at the cheapest seasons of the year, which are again 
sold ten per cent, cheaper than the regular English merchant 
can sell them in London." This, Lambe says, the English mer- 
chant cannot do for want of capital, and he cannot borrow the 
money at less than six per cent., besides " procuring and con- 
tinuance," that is, a commission for obtaining the loan and 
rencAval of it. 

' Trade, Shipping Banks, by Samuel Lambe, 1657. 


" The good we may do ourselves by banks, if settled in Eng- 
land, are many, for no nation ever yet made use of them but 
they flourished and thrived exceedingly : they -will by well order- 
ing of them, bring back the gold and silver drained out of this 
land by tlie Hollanders' banks : they will increase the stock 
(capital) of this land : they Avill increase the fisheries, navigation 
and shipping: they will increase the revenues and customs: they 
will wonderfully employ the poor, and increase manufactures 
and foreign trade : they will, increase trade in our plantations, 
and cause ships to be built in New England as good, or better, 
than any built in Holland," &c., &c. 

His definition of a bank is "A certain number of sufiicient 
men of estates and credits joined together in a joint stock, being, 
as it Avere, the general cash-keepers, or treasurers, of that place 
where they are settled, letting out imaginary money" (credit ex- 
pressed in money of account) " at interest, at two and a half or 
three per cent., and making payments thereof by passing each 
man's account from one to another, with much facility and ease, 
and saving much trouble in receiving and paying money." He 
then illustrates, by an example, how a credit thus given may be 
transferred very many times, and come at last unto the merchant 
who first issued it, all the debts for which it was transferred 
being fully paid. 

The constitution of Mr. Lambe's proposed bank was peculiar, 
and illustrates the prevailing opinions on the power and uses of 
credit. " That the society of good men, or governors, that shall 
manage the banke be chosen by the several companies of mer- 
chants of London, viz. : East India, Turkey, Merchant Adven- 
turers, East Countrey, Muscovia, Greenland, and Guynne Com- 
panies," each company choosing two or more, and filling their 
own vacancies. Tlie persons thus chosen and met together 
"shall choose to themselves two or more of the ablest merchants 
that trade chiefly, or altogether, for Spain, and the like who 
trade for France, Italy and the West Indies, for each place two 
or more, as shall be thought fitting," &c. "Such a society, 
knowing most English merchants that trade to all parts, and 
thereby knowing whom to credit, and by their knowledge will 


well understand how to govern the banke, and by the help 
thereof to countermine the Dutch in their designs in any part 
of the world where they prejudice the English by their bankes." 
The bank was to be open to receive deposits, which were to be 
repayable on demand ; " interest to be allowed on deposits to 
the aged and widows" — '• imaginary money, or credit, to be let out 
upon ticket" (that is, subject to transfer) " at two and a half and 
three per cent." "All bills of exchange to be received and paid 
in banke. The chosen men may take a house near the Exchange, 
and set there certain hours every day : that the good men who 
manage the banke make up their accounts once in every year : 
that the profits of the banke go to the good men that manage 
the same, in lieu of their great care and pains," and defraying 
all charges : a reserve, however, of a portion of the profits to be 
made to increase the credit and power of the banke : " that the 
banke also furnish another banke with competent stock, to let 
out any summe of money under £5, or XIO, at reasonable rates ; 
for many poore people are now forced to give intolerable rates, 
as about Gd. per week for the use of 20 shillings." 

It is a remarkable feature of this plan of a bank by an intel- 
ligent London merchant, that it proposes no capital, nor any 
fund paid in, by the good men who were to manage and to re- 
ceive the profits. It does not clearly announce that the depo- 
sits were to be lent, as a source of profit ; if that were intended, 
it was evidently not the main object. The chief business of the 
bank was to consist in the issue of credits, to be circulated or 
transferred on its books. The person at whose instance such 
credit was to be issued must, of course, give the bank some secu- 
rity or guarantee adequate to the amount of the credit asked 
for : this may have been a promissory note, bill of exchange of 
the applicant, or of some other person, or it may have been gold 
or silver bullion, or a bond or mortgage. The credit would not 
have been granted without some sufficient guarantee that it would 
be redeemed, and the interest paid. As no permanent capital 
was proposed, it Avas not intended that the credits issued should 
be permanent, but that all should be redeemable and extinguish- 
able on the return of the security. 


The plan differed, therefore, materially from any of the conti- 
nental banks. Taking the Banks of Venice and Amsterdam as 
types of these, it differed from the first, which only circulated 
on its books the debt of the State ; and from the second, whicli 
only circulated the ownership of an actual deposit of coin or 
bullion ; whilst the proposed bank was intended only to circulate 
a credit issued for the occasion upon special security : it was in- 
tended merely to be a substitution of the better credit of the 
bank for the credit of the applicant. If the credit of the bank 
should not be more available than that of the individual, it would 
not be applied for, nor would it be received by those who could 
not use it in payment. This was, then, a bold conception of the 
power of credit, and contemplated a high state of confidence and 
unblemished commercial integrity. Mr. Lambe plainly aimed 
at a procedure like that now carried on by our system of bank 
deposits. When a note is discounted according to our modern 
system of banking, a credit is given for the proceeds on the 
books of the bank ; and the credit thus given is transferable at 
the pleasure of the holder, until extinguished by payment of the 
security on which it is founded. 

The state of the coin in the 17th century forced the whole 
subject of money and currency very specially upon public atten- 
tion. A writer, 1696, commences a pamphlet on this topic in 
these words : " The inconvenience and mischiefs that the cur- 
rency of dipt and counterfeit money necessarily occasions are 
so manifest to everybody, that it is as. needless to point at any 
of them as it is impossible to enumerate all. It violates all con- 
tracts, and alters the measure of trade, breeding confusion in all 
commerce," &c.' 

Some of the bitterest discontents of the English people with 
which their annals make us familiar, have arisen from the condi- 
tion of their coinage. Prudential measures were devised by 
Edward the Sixth, but not fully executed ; the reform was left 
to be more fully carried out by Elizabeth, who took all the credit 
of having accomplished what Edward could not, and Mary dared 

Currency of Clipt Money, 1696. 


not do.' But crying as this evil of debased and deteriorated 
coins was in England, it fell far short of the corresponding mis- 
chief on the continent, and did not lead to the remedy adopted 
there, of establishing banks of deposit, in which the coins might 
be placed once for all out of the reach of the clipper and sweater, 
not subject to wear, and safe from the debasing schemes of men 
in power.^ These banks were multiplied on the continent during 
the first half of the 17th century. There appears to have been 
no attempt of the kind made in England during that time. In 
the latter half of that century, the subject of banks occupied 
very much of the attention of the English public. A vast number 
of plans, and projects of banks, were brought before the public. 
Not one of these, so far as we know, or can learn from a large 
number of publications of that period now before us, on the sub- 
ject of money and banks, proposed a bank for the deposit of 
coins or bullion. They all looked to banks as instruments of 
credit, the chief advantage of which would be the furnishing 
some substitute for money — some form of credit to circulate in 
the place of money. The success of the goldsmiths, and other 
private bankers of London, in issuing their notes payable to 
bearer on demand, had been recently remarked, and it had ex- 
cited the imaginations of men of business as to the power and 
utility of credit. The goldsmiths not only issued such notes for 
circulation in place of money, but also bonds, or sealed bills, 
bearing interest, but payable at a fixed day : these were also 
employed as a currency. The i^ublic mind thus excited on the 
subject of credit, and teeming with hopes of some great delivery 
from the evils of the money system, began to bring forth plans 
of banks, and schemes of credit. 

We shall notice a few from publications of that period, of 
which the author of a "Discourse on Money" says: "I see 
many printed proposals of banks of a lower rate ; projects and 
funds of gain and security, &;c., to adventurers, everywhere pub- 

' Camden, in his life of Elizabeth, thus speaks of this achievement of the 
Queen: "Magnum sane, memorandum, quod neque Edwardus potuit neque 
Maria ausa." — Page 61. 

2 Essay on Money and Coins, London, 1757. 

OFFICE OF CREDIT, 1665. 345 

lished and pressed on the people." This he aftenvards calls 
"fishing for gudgeons."' 

" The office of credit, by the use of which none can possibly 
sustain loss, but every man may certaitdy receive great gain and 
wealth, with a plain demonstration how a man may trade for six 
times his stock, and never be trusted ; and that, if generally re- 
ceived, there can afterwards no accident happen to cause a dead- 
ness or slowness of trade, except wars, nor need men make any 
more bad debts" — is the title of a pamphlet by Dr. Hugh Cham- 
berlain, published in 1665. His project is : " Neither bank nor 
lumbard, because the foundation of credit in bank is money, 
and here it is goods and merchandise. And for goods received 
in a lumbard, they deliver out money, and here credit ; and yet 
it is like both ; for, after the same manner and limitations, in 
every respect, as goods are received, stored and preserved in a 
lumbard, shall they be in this office; and credit shall be delivered 
out and transferred exactly after the manner as it is in foreign 
banks." The meaning of this is, that parties making deposits 
of goods shall, for the value agreed, receive a credit for the 
amount on the books of the office, transferable in the same man- 
ner as at the Banks of Venice or Amsterdam. The object was 
to make goods a material for deposit, instead of money, as in the 
banks of the continent at that day, or the proceeds of notes dis- 
counted at the present day. The check, or order of transfer, 
was to be in this form : — 

Gentlemen: — Pray make A. B. creditor for £100, and mc debtor 
for the like sum, for which this shall be your warrant. 
To the Society of the ^ 
Office of Credits. ^ 

It was designed that the office should become a great depo- 
sitory of goods, to the mutual advantage of buyers and sellers. 
Heavy stocks of goods, instead of being in the warehouse of the 
purchaser, were to be placed in the depositories of the office, 
where the seller obtained a credit for them, whilst the purchaser 
could withdraw them as his sales progressed, and only make his 

' London, 109G, page 141. 


payments at the same rate. The whole scheme is developed 
Avith ingenuity and earnestness. 

In 1678, appeared " Proposals to the King and Parliament of 
a Large Model of a Bank, Showing how a fund of a bank may 
be made without much change, or any hazard, that may give out 
bills of credit to a vast extent, that all Europe will accept of, 
rather than money, by M. Lewis." His preface says : "All 
men are satisfied a bank is very advantageous to a nation, &c., 
&c. ; but the great question hath been, how to make a fund that 
shall be credited by all, without vast quantities of ready cash or 
bullion to lie dead, which we have not to spare for such a pur- 

The author of the " Large Model" proposes that the whole 
kingdom shall be divided into three or four hundred precincts, 
in each of which shall be an officer of the bank, with officers and 
assistants appointed or elected by the people of the precinct, 
which was to be responsible for the conduct of these officers, and 
for the safety of all money deposited with them. This was upon 
the principle of the English common law, that every hundred 
was liable to make good any robbery committed within it. It 
was supposed this would secure competent and faithful officers. 
These branches, or offices, were to draw upon each other, accord- 
ing to the demands of business, so as to make the domestic 
exchange as easy as possible, by receiving money at any office, 
and paying it out at any other office. Bills of credit were, upon 
demand, to be issued to any requesting them, upon deposit of 
the equivalent amount in money. These bills were transferable 
certificates of deposit. But bills of credit were to be issued upon 
deposit of any other articles of value. The author of this scheme 
asserts that " a bill of exchange, or a bill of credit, that is trans- 
ferable ujjon a good man is as good as money, for money is 
nothing but a medium of commerce, or security for a while, that 
when we part with one thing Ave can spare, we may purchase 
another thing of the like value." He instances many cases of 
such bills passing as money in England. " Diverse citizens" 
bills at this day ai'e accepted as current, though they have no 
other security but the honesty of the man, and the supposition 

BANK OF CREDIT, 1(3 82. 347 

of an estate ; and yet many are glad to leave tlicir money in 
such hands, without interest, for safety. I heard a person of 
quality say that he saw the same money transmitted nine times 
in one morning, by writing of the credit from one to another, 
and the money in specie was left untouched at last." 

The details of this model of a bank are set forth most elabo- 
rately, and the whole plan consistently developed, with a great 
variety of ingenious and instructive illustrations. Among other 
facts referred to, is one in regard to the Bank of Venice, which 
we have not met elsewhere. It is well known that the bank 
money of Venice maintained a value far above specie ; and this 
premium rose so high, as to call for public interposition, which 
fixed the premium at twenty per cent., and that this was after- 
wards avoided by a sur agio, or a premium on the twenty per 
cent. Mr. Lewis informs us that a sagacious merchant of Venice 
suggested a method, at last, by which the dilficulty was overcome : 
Whenever the tendency of the bank money was too strongly up- 
ward, the bank tendered the specie itself in payment of credits ; 
that is, the party who expected to receive bank money, or 
credits, in payment, Avas paid in specie by the bank ; so that he 
who attended at bank to receive a payment, did not know but 
that he would receive payment in gold or silver. This method 
could be- brought to bear very effectively upon those who were 
disposed to monopolize the deposits, or bank money. One chief 
cause of the premium upon bank credits was, that bills of ex- 
change were payable in them ; and men who had bills to pay 
were obliged to procure bank credits for that purpose. Specu- 
lators, however, would be repelled by the plan mentioned by 

A publication, dated in 1682, bears the title of " Corporation 
Credit, or a Bank of Credit, made current by common con- 
sent in London, more useful and safe than money." This was 
a proposal addressed to the authorities of that city, referred by 
them to a committee, upon report of which the phm was ap- 
proved, and the bank authorized. The plan of working tiiis 
bank did not differ very much from that of Lambc's, Init it 
required a subscribed and paid-up fund as '* a fund or founda- 


tion of honor," Avhich might be paid in tin, lead, copper, steel, 
or iron, raw silk, wool, or cotton, or in brass or iron wyre, lin- 
nen cloth or calicoes, or other goods sufficient to raise the money 
subscribed. Sixteen reasons are given why such a bank would 
be a public benefit, chiefly referring to the promotion of trade 
and industry. Five reasons why private interests will be pro- 
moted, among which are : " The trouble of counting money may 
be much avoided ; the usual loss by receiving counterfeit and 
dipt money will be saved ; many fruitless journeys for money 
will be saved," &c. 

" The credit here recommended answers all the ends and in- 
tents of money, for it will pass as far as it is known, and our 
money doth no more. So of the sealed bags of money in the 
East Indies, which pass as far as the East India prince hath 
credit. This credit is better than money, for it will pass from 
man to man without any damage to itself, or its possessor ; but 
money occasions great loss of time, as well as trouble, is subject 
to clipping, counterfeiting and robbery, and is oftentimes the 
occasion of bloodshed and murder." 

" But to further satisfy some men how trade can be driven, 
commodities bought, and debts paid, without money or specie, 
besides the indubitable certainty of its being practised in the 
several foreign banks, I shall form an example or two of the 
manner and conveniences of it. As, suppose A. oweth B. <£100, 
B. the like to C, C the like to D., D. the like to E., and E. to 
F., and F. to G., and G. to IL, and II. to I., and I. to A., which 
if it were possible for them all to know, they might agree upon a 
meeting, and quit each other by rescounter" (set-off), "and then 
all are satisfied, without one farthing being paid in specie; where 
else, for want of this meeting (because each knows but his imme- 
diate debtor and creditor, and not the mediate), or for want of 
ready money, they are all puzzled with debts and credits. If all 
these debts are to be paid by the circulation of <£100 in money, 
it will be defeated, if any one in the chain is tempted to employ 
the money otherwise, or if the money is lost or stolen on its pas- 
sage ; neither of which is so likely to happen if credit be em- 

NATIONAL BANK, 169 5. 349 

ployed, which would quickly and surely discharge every debt 
without risk or loss." 

A pamphlet of 1683 thus defines a Bank of Credit : — "It is 
a fund of goods, or assurances of lands, &c., deposited for the 
raising of credit thereupon, under the greatest security of con- 
stitution and persons that can be devised ; upon which fund the 
depositor is furnished with bank bills of credit for supply of his 
occasions, which will be as useful as money to him." The bank 
bills of credit were to be issued with every possible security 
against counterfeits, the precautions being set forth. 

"Besides which, two trustees and the storekeeper of the bank 
out of which the bills shall be issued, do also testifie that the 
value of the said bills is in the bank : all which officers are upon 
their oaths, and give good security for the honest discharge of 
their respective employments, so that no one can hope to make 
tender of a false or counterfeit bill, or one unduly come to his 
hands, without being detected ; in which respect these bills are 
better than gold or silver, besides they save charges in carrying, 
and time in telling and retelling money in payments, and it is 
easier and safer travelling with them ; nor can any of these be 
fraudulently issued out of the office itself, for they are printed in 
the bank house, on paper made on purpose," &c. 

In the same year, 1G83, the Bank of Credit is described and 
explained in a pamphlet, the author of which regards the subject 
from the same point of view. 

In 1695, appeared "A Proposal for a National Bank, consist- 
ing of land, or any other valuable securities or depositums, with 
a grand cash for the return of money," by Robert Murray. The 
author dwells at length on the great advantages of the Bank of 
Amsterdam, Avhich he regards as " incomparably the best and 
greatest in the world, being built on these three pillars : First, 
an authentic registry of all receipts and payments above 300 
guilders; secondly, the enjoining the payment in bank of all 
foreign bills of exchange ; and thirdly, the city and government 
undertaking the security of all money paid in bank." 

In urging his own plan, he thus speaks of the advantages of 
banks: — "The great convenience attending banks, and the 

350 asgill's other money, igog. 

difficulty of trade "where banks are wanting, show their necessity 
and use in all trading countries. To avoid the trouble of telling, 
retelling, carrying and recarrying, and the danger and loss of 
counterfeit money, men are under a sort of necessity to trust 
their cash in the hands of private bankers and goldsmiths, where 
public banks arc not established ; and this they continue to do, 
notwithstanding the incredible losses often sustained by frequent 
failures and insolvency of many, to the ruiu of those that trust 

The author declares himself the advocate of public banks 
under the control of public authorities, and the guarantee of the 
state. " The bank intended by this proposal is to be under the 
authority, care, inspection and control of the public magistracy, 
as most consonant to reason, nature and political economy." 
The bank was to consist of all things capable of being a fund of 
credit, as land, ground-rents, &c., and be divided into 10,000 
shares, of .£100 each, or £1,000,000, payable in ten quarterly 
instalments ; " Avhich sum will be found a stock sufiBcient to cir- 
culate the said credit from time to time issued :" this money to 
be deposited in the treasury of the City of London, and branches 
to be established in some fifty of the chief towns of the United 

The business proposed for this bank was to make advances 
upon bank, foreign, inland bills, exchequer tallies, upon goods, 
upon annuities, and public taxes, such as the poor rates, to 
honest persons capable of employing their time to good advan- 
tage, kc. 

In the same year, 1696, was produced " Several assertions 
proved to create another species of money than gold and silver," 
by J. Asgill. The first assertion is, "that there is a necessity 
of creating another kind of money ;" the third is, " that all pro- 
posals for making bills of credit current money directly, by act 
of Parliament, can be of no use;" the sixth is, "that securities 
on land are capable of all the quality of money, and therefore 
they are capable of being made money, for land is durable and 
incorruptible, the earth being the great store-house of the world, 
where all the magazines of life and defence are kept sweet and 

LAND CREDIT, 1G98. 351 

safe. Such securities are divisible into larorer or lesser sums, 
and capable of having their value stamped on their face, and of 
being made transferable bj delivery." 

In 1698, was published " The Constitution of the Office of 
Land Credit," a project very elaborately developed, by Hugh 
Chamberling, the author of the pamphlet noticed ante, page 
345. This scheme of a bank was brought out under the sanc- 
tion of lofty names ; among the honorary managers are four 
earls, and many other lords, barons, and gentlemen of repute. 
It is stated that the projector, Chamberling, had devoted thirty 
years of his life to this subject. Some of his positions are : 
" That lands and hands are the material and efficient causes of 
all true, genuine and natural riches : that credit, rightly founded 
on laixl, must evidently be more secure than any other sort of 
credit : that credit having all essentials of the usual money, and 
some other additional advantages, wants nothing but a coercion 
law, enforcing its currency, to enable it to assume the name of 
money." The form of the institution, its mode of government, 
the plan of settling the credit or security upon lands, are all 
minutely set forth. 

These notices of projects and schemes of banking some cen- 
tury and a half old are given to the reader without comment, 
the object being merely to make known the current of opinion 
at that time. We might enlarge the list, for plans of banks con- 
tinued to appear for many years after the Bank of England was 
chartered; but we have, perhaps, more than satisfied the curiosity 
of the reader. It is evident that great misconceptions prevailed 
as to the power and real nature of credit ; this is manifest in all 
these plans. The subject was not as well understood as it was 
upon the continent. It is not for many years after the date of 
these publications, that we find in England any well-written 
account of the continental banks or credit system. 


§ 2. The Bank of England chartered in 1694 — William Patterson the pro- 
jector — Founded on a loan to the government of £1,200,000 at eight per 
cent. — Opposition and objections — Commenced business 1695 — Powers 
indefinite — Bank-notes — Advances to government — Recoinage — Rate of 
discount — Business of the Bank — Use of deposits — Issue of bank bills — 
Employing its credit — Goldsmiths, or private bankers, robbed by Charks 
IL — Safety of deposits in Bank of England — TJse of deposits by depo- 
sitors and the Bank — Issue of bank bills payable on demand — Bills of 
exchange and promissory notes on time — Convertibility — Theory of bank- 
notes not substitutes for specie, but for commercial paper, and should fluc- 
tuate icith this paper, and not ivith coin — Concentration of payments in 

The Bank of England owes its origin to one of the most fruit- 
ful schemers of the latter half of the 17th century — the same 
who was the projector of the Bank of Scotland, and the chief 
promoter of the disastrous enterprise undertaken by the Darien 
Company, of planting a colony on the Isthmus of Darien.^ 

The charter of this bank was obtained in 1694, in the sixth 
year of William and Mary. The scheme, which was due to the 
genius of William Patterson, had been on foot several years, and 
had been urged on the government with great perseverance. It 
had to encounter, like other schemes for banks, opposition from 
various quarters. The tories, who were in opposition to the 
government, opposed it as likely to be an aid to the administra- 
tion ; the goldsmiths, private bankers and usurers, opposed 
it as likely to lower the rate of interest, and diminish their pro- 
fits. The cautious and conservative regarded it as a novelty, 
fraught with danger to the country ; and they prophesied fearful 
results, if this bank were chartered. Patterson, who well knew 
the necessities of the government, then engaged in Avar, and 
frequently obliged to pay from ten to forty per cent, interest 
for short loans, in anticipation of the public revenues, had made 
it a prominent part of his plan to oifer the public treasury 
XI, 200,000, at eight per cent, interest. 

1 Five vessels, containing this Scotch colony, left the port of Leith in 
July, 1G98 ; and of 1200 persons who embarked, 30 only remained alive to 
return the next year.' 


This was all that secured attention to his project. It "was 
strenuously resisted, both in Privy Council and in Parliament ; 
but finally triumphing over all opposition, the charter of the 
Bank of England Avas issued in 1694. Previous to this date, 
about .£500,000 of the stock had been subscribed through the 
efforts of Michael Godfrey, one of the most active promoters of 
the enterprise in London. The remaining .£700,000 was, after 
due notice of the opening of the books under the charter, sub- 
scribed in ten days. 

The bank was not allowed to go into operation without 
the persevering and determined opposition of the various classes 
whose interests were opposed to it. There was no evil omen 
which was not seized upon, and no objection which the most fer- 
tile imagination could conjure up, Avhich was not brought to bear 
against it. It was said that banks could only prosper in repubr 
lies, and that, if attempted under a monarchy, the monarch 
would either absorb the bank, or the bank would absorb the 
monarchy. It was alleged that it would become a monopoly, 
and engross the whole money of the kingdom ; that it would be 
subservient to the government, and be applied to the worst pur- 
poses of arbitrary power ; that it would not assist, but weaken 
commerce, by withdrawing money from trade to apply to stock- 
jobbing; that it would produce a swarm of stock-jobbers and 
brokers, to prey upon their fellow-creatures, and corrupt the 
morals of the nation. It was said, in one of the pamphlets of 
the day : " That the Bank of England crept into the Avorld, not 
being in any votes" (proposed laws) "by that name, but in an act 
granting to their Majesties several duties upon tunnage of ships, 
beer, ale, &c., for securing certain recompenses to such as 
should subscribe £1,200,000 on a fund of eight per cent.," &c. 

The writer roundly asserts that there were many who, if they 
had known what kind of bank was wrapped up in that bill, would 
have been willing to lend tlic money gratis for several years, to 
obtain such privileges. 

Another opponent admits there was some excuse for establish- 
ing the bank, but none for continuing it. " The nation had been 
for several years engaged in an expensive, hazardous and doubt- 

354 THE B A N K - I N I Q U I T Y BY LAW. 

fill war ; the government had drained all their projects to raise 
the necessary supplies ; but the credit of the nation sunk, occa- 
sioned partly by the divisions of Parliament, the deficiency of 
the funds, and most unfortunately by the baseness of our coin, 
so that neither our money nor our credit would pass at market." 
In this necessity, the author admits the government had no 
choice but to accept the alternative of a bank. "And when such 
an enemy was at our doors, it was too favorable an opportunity 
for such a fort as this to be erected, which, though then designed 
for our defence, serves now (1707) to overawe us, and has turned 
its cannon against the state it was built to protect." After in- 
dulging in this strain at some length, he proceeds : "We are, 
God be thanked, greatly recovered from that dangerous crisis, 
our credit retrieved, our money recoined, great part of our debts 
paid, and almost all provided for." . . . "We crowd more to 
get our money into the funds, than heretofore to get it out ; and 
we are freed from any necessity of supporting the wants of the 
government. It is, therefore, a matter of prudence whether the 
bank ought to be continued longer."^ To this continuunce the 
writer opposes all his powers of logic and abuse. His warnings 
and denunciations are alike terrible. Of the two evils, he thinks 
the bank far more dangerous than a standing army; that neither 
should be allowed in time of peace ; and that both should be dis- 
banded as soon as the work of war is done. He concludes by 
exhorting those who have the poAver, "if they would have their 
peace and liberties safe, by putting it out of the power of any to 
molest them, and by keeping their elections free, not to repair 
this fort (the Bank of England), that overawes them, and by 
their compassion to the poor tradesmen, and their own interest, 
not to establish iniquity by law."^ 

This may serve as a specimen of the rhetoric employed against 
the Bank of England in the first years of its existence. The 
opposition which began with its birth has followed it down to the 
present hour. Every recurrence of a renewal of its charter 

' A Short View of the Dungers and Mischiefs of the Bank of England. 
London, 1707. 

'^ lie gives the bank no credit for all this. 

P Vv' E R S OF THE BANK. 355 

brings forth a host of objectors. It is now, however, so tho- 
roughly incorporated with the body politic and financial system 
of England, that its continuance is not only necessary, but indis- 
pensable. To touch it with unskilful hands is hazardous, to 
shake its credit is ruinous not only to public, but to private 

On the 1st of January, 1695, the bank went into operation. 
Its whole capital, when paid in, and as paid in, was to be lent to 
the government as a special loan, the interest whereof was secured 
upon certain specified taxes mentioned in the charter. In addi- 
tion to the interest of ,£96,000, the further annual sum of £4000 
per annum was allowed to the bank for the management of the 
loan. " The Governor and Company of the Bank of England had 
full authority granted them, in whatever concerned "borrowing or 
receiving moneys, and giving security for the same under their seal ; 
in dealing in bills of exchange, buying or selling bullion, gold or 
silver ; selling any goods, wares or merchandise deposited with 
them for money lent or advanced on them, and not redeemed at 
the time agreed, or within three months after ; in selling such 
goods as may be the produce of lands purchased by the bank ; 
in lending or advancing any of the moneys of the corporation ; 
and in taking pawns, or other securities, for the same." From 
this, it will be apparent that the banking business of the corpo- 
ration was not very particularly described or specified. The 
main fact was, that the subscribers to a public loan of ,£1,200,000 
were incorporated as a bank, and left to shape their business, 
under these general powers, as their interests and the demands 
of their customers might dictate. Their first object, no doubt, 
was to invito deposits ; and certainly the security of such a large 
amount of loan to the government was superior to any ever be- 
fore offered to depositors in England. 

The act of incorporation conferred no special power of issuing 
bank-notes, or other paper, to circulate as money ; but this 
power seems to have been regarded as incident to the corporate 
powers conferred in the charter. One of the first notices published 
by the bank, dated 11th February, 1695, was to the effect that 
three cashiers named in the notice were the only persons author- 


ized by the bank to give notes on behalf of the company either 
for payment of money or bills ; that is, either of the three 
cashiers, and no other person, -were authorized to sign and issue 
notes, for which the bank ".vas to bo accountable. We find very 
few particulars in regard to the earliest issues of the bank. No 
notes were at first issued under £20. When the "infant" bank, 
in 1696, encountered the difficulties of the national recoinage, it 
for a time suspended payments, and, as a measure of relief, 
issued bills under seal, bearing six per cent, interest, with which 
they redeemed the cashiers' notes, which were payable on de- 
mand without interest. 

That the bank issued these sealed bills and the cashiers' notes 
freely, is evident from a statement furnished to the House of 
Commons, dated 10th November, 1696, by which it appeared 
that there was outstanding sealed bills, <£893,800, cashiers' 
notes, X764,196. The cash then on hand, £35,664, was all 
they had to meet XI, 657,996 of sealed bills and notes. The 
advances made by the bank had been chiefly to the govern- 
ment, only .£231,000 appearing to have been lent to individuals. 
The government being the chief debtor, was bound to aiford the 
necessary relief in the emergency. This was done by allowing 
the bank to increase its stock, in payment of which increase a 
portion of the outstanding liabilities of the bank were absorbed. 
So great was the financial derangement growing out of the 
recoinage then in progress, of the embarrassments of the govern- 
ment, and the over-issues of the bank, that the obligations of 
the public treasury were at a discount of forty or fifty per cent., 
and bank-notes at twelve to twenty per cent. It is evident that 
the notes of the bank had for a time been received with great 
favor, or so large an amount as £1,657,996 could not have been 
issued in less than two years. 

The government had determined upon recoining in full weight 
a silver currency depreciated 25 per cent, by wear and clipping : 
the bank continued to issue its bills for this light coin, though 
obliged to wait the movement of the mint for the new coins.* 

> Ante, pp. 80 to 85. 


The old coins were, by proclamation, declared uncurrent, and 
the bank could not obtain new coins from the mint fast enough 
to meet the demands of a community greatly in need of cur- 
rency. This contributed much to increase the issue of bank- 

The measure of the government brought an addition to the 
stock of about £1,000,000, and reduced the liabilities of the 
bank to the same amount. This, with an act of Parliament, 
containing many provisions favorable to the bank, raised the 
stock in a few months to 112 per cent., greatly enhanced the 
price of the government securities, and gave the bank-notes free 
currency. The bank recovered from its first suspension, by this 
aid of the government, in a very short time. It must be noted, 
however, that the aid rendered by the bank to the government 
was even more important and substantial than that rendered by 
the latter to the bank. 

The charter Avas not only silent with reference to the issue of 
notes, but also in regard to the payment of specie. That very 
important matter was left to be regulated by the general laws 
of the country. The corporate body could issue notes, and 
having issued them, it was bound to pay them in lawful money, 
as other persons and bodies corporate would be bound. No 
general alarm seems to have been felt on the occasion of this 
first suspension, and the obligations of the bank seem to have 
been regarded as safe, though not convertible instantaneously 
into money. 

We have already remarked that the bank was, under the 
general terms of its charter, left to shape its policy according to 
the course of business and the dictates of its own interests. To 
induce deposits, the bank early made a distinction in the rate 
of discount between its regular customers and all other appli- 
cants, of from two and a half to three per cent., the highest rate 
being six per cent. The first error of the bank, that of lending 
too freely to the government, had the result, in the end, of esta- 
blishing its credit the more firmly, for it secured thereby effec- 
tually the continued and efficient support of the national trea- 
sury ; and being thus strongly established, it very rapidly secured 


the confidence of men of business and wealth. Although spe- 
cially authorized to receive merchandise and personal property 
in security for loans, very fcAV of its operations took that direc- 
tion; its business consisted mainly in dealing in bills of ex- 
change, and other commercial paper, and in receiving deposits. 
The bank having nothino; in its vaults at the outset but certi- 
ficates of public debt, to the extent to which the £1,200,000 had 
been paid up, had only three modes of carrying on banking 
business open to it. 

1. To lend or employ the money deposited by its customers, 
to the amount it might be safe or expedient to lend or use money 
which was payable to depositors on demand. 

2. To issue bank-notes for circulation as currency, or bonds 
bearing interest, to be taken by those who desired such security 
for investments ; and to employ the bank-notes, and the money 
received for bonds, in the purchase of promissory notes and bills 
of exchange at such rates as would leave a profit to the bank. 

3. To employ its credit, which soon attained a high grade, in 
discounting bills of exchange and promissory notes for its cus- 
tomers, giving them merely a credit in account on the books of 
the bank for the proceeds of the paper discounted, and allowing 
the parties obtaining such credits to transfer them, in sums to 
suit their convenience, to other persons. 

The bank, notwithstanding the check it received in the second 
year of its existence, rose rapidly in importance and in business. 
It blended at once, in its operations, all the modes of business 
above specified : but as these modes of banking are essentially 
distinct operations, even when carried on by the same bank, we 
shall consider them separately ; the more so, as the confusion 
of terms and ideas resulting from these blended processes of the 
bank has, from that time to the present, produced a degree of 
confusion in men's minds, upon the subject of banks of circula- 
tion, very unfavorable to clear perceptions on the subjects of 
money and banking. 

The business of receiving, holding and paying out deposits is 
probably as old as the use of money. It has assumed many dif- 
ferent forms in different ages, and among different people ; but 


tlio business has existed at all times, and in all nations, where 
gold and silver money were employed. It was always, and is 
yet, unavoidable. A large portion of those who have occasion 
to receive money, could not and cannot be judges of the genuine- 
ness of coin or bullion ; they could not weigh and test it with 
sufficient accuracy ; this, of course, gave rise to a class of men 
skilled in the precious metals, and with them these metals were 
deposited for safe-keeping, and convenience of paying. In all 
ages, the safe-keeping of the precious metals was one of tlic most 
difficult exigencies to provide for, and one which created unceas- 
ing anxiety. We find mention of bankers in the history of every 
ancient civilized people, who exercised their functions very much 
as they do in China at this day. Our Saviour, in one of his 
parables, makes the lord of the unfaithful servant say : "Where- 
fore, then, gavcst not thou thy money into the bank, that at my 
coming I might have required mine own with usury."' From 
this, it appears that the bankers of that day were in the habit 
of paying interest on deposits. 

The bankers of England, previous to the charter of the Bank 
of England, and to a large extent for a long time afterward, 
Avere the goldsmiths. Their business made them adepts in bullion 
and money, and required safe depositories. Very large suras 
were entrusted to them by the nobility, gentry, and business 
men of England." But as these private bankers had been, on 
two occasions, robbed by the monarchs of England, some dis- 
trust of their ability to protect money committed to them natu- 
rally found a place in the minds of depositors. The Bank of 
England took, from the beginning, the position of a great and 
powerful corporation. It commanded at once so high a degree 
of confidence, as to secure large deposits. One of its first by- 

' Luke, xix. 23. 

^ In tlie reign of Charles the Second, when the money of the bankers, or 
goldsmiths, was seized in the exchequer, where it hud been deposited for 
safety, tlio amount was ei,;}28,52G — a great sum for those days. Charles 
the First had seized £200,000, deposited in the mint, in his time. One 
of the bankers robbed by Charles the Second had £110,721 taken from 


laws assisted in strengthening this confidence, by requiring that 
the cash of the corporation should "be carefully kept under 
three or more locks, the keys whereof shall be kept by such three 
or more of the Govei'nor, Deputy Governor and Directors as the 
said Court of Directors shall from time to time empower to keep 
the same, each of said persons keeping one of said keys." 

The keeping of money for a large number of persons, who 
only draw it as their wants and occasions require, leaves a con- 
siderable proportion in the hands of the banker, subject to his 
disposal, as not at all likely to be called for by the owners. 
This the banker may lend upon good securities, in the hope that 
it will not be required, or that, if the Avhole or a part should be 
demanded, he will be able, by means of the same securities, to 
raise the amount demanded. The private bankers of England, 
and indeed of all Europe, had realized large profits from this 
allowed trading in money not their own. It was, however, not 
a very unusual occurrence that, in times of alarm and commer- 
cial panic, a run on such bankers took place, and their discredit 
and ruin followed upon their inability to meet the demands of 
customers ; for they found, by experience, that the season of 
alarm and distrust which produced the demand for deposits, was 
one in which they could not realize upon the securities taken for 
loans. The Bank of England could not, of course, be exempt 
from this difficulty. It must always have been, and must always 
be, a business of no little hazard, to lend the money of parties 
entitled to repayment on demand. 

It is urged by some, that all business transactions in which 
money is involved should be for money in hand ; but even if all 
sales of property were for cash, Avhich never has been the case 
in any civilized country, and never can be, yet many transac- 
tions in credit would take place. All deposits with bankers are 
credits given to the bank ; all loans of money by the bank are 
transactions of credit, as well as all loans from one individual to 
another. There never was a civilized country in which such 
transactions did not take place. Of course, periods of alarm, 
panic or commercial distrust must occur, from one cause or 
another ; and at such times, neither banks nor individuals can 


immediately recall the money they have lent or deposited. The 
history of the Bank of England furnishes many such occasions ; 
but as the bank enjoyed the full confidence and support of the 
government, it was ever able to bear the pressure of such occa- 
sions with less damage than any mere private bankers. No depo- 
sitor in the Bank of England has, during its existence of one 
hundred and sixty years, ever lost his deposit. During that 
time, immense sums deposited with private bankers, and inferior 
establishments, have been totally lost. It cannot be doubted 
that the bank, despite the losses incident to lending money, to 
the temptation of employing too freely the money of its cus- 
tomers, and the sacrifices involved in replacing money upon occa- 
sions of panic, has realized large profits from this branch of its 
business, which has been increasing in magnitude and advantage 
from the institution of the bank until the present time. 

We have thus presented deposits in the single view of their 
safety, and the advantage of the bank in lending such propor- 
tion of them as it may be expedient to employ in that way. 
And we have only referred to deposits of actual money — that 
is, of coin or bullion. Other values which are included in depo- 
sits, such as bank-notes and bank credits, will be considered 
hereafter. Our object has been to separate the various functions 
and processes of the business of the bank, and to give the reader 
a distinct view of each process, without which he cannot under- 
stand the whole when combined. 

There is, however, an aspect of deposits of money, which 
may be deemed equally as important to the bank, and more so 
to the commercial public, than that which we have presented. 
The deposits would not reach nearly so large an amount, if they 
were expected to lie in the bank useless to the depositor. 
Money is deposited not only for safe-keeping, but for actual and 
rapid use. The bank allows the deposits to be transferred from 
one account to another, in as rapid succession as the convenience 
of the parties may dictate. The circulation of deposits may, by 
this means, be vastly beyond any possible actual movement of 
money by counting and delivery out of hank. Without any 
trammels of counting, weighing, scrutinizing and assaying, such 


as must take place with coins and bullion, these, when once depo- 
sited, may be transferred by check on the books of the bank a 
hundred times daily, if needful. This may give trouble to the 
bank, which must have clerks enough to make these transfers, 
and keep the accounts of all correctly. The operation of these 
transfers takes nothing from the bank ; the money remains ; the 
ownership only changes. The great facility, safety and rapidity 
of this mode of payment attracts large sums, because the depo- 
sitors have, in much the largest number of cases, a far more 
efficient use of their money as it lies in bank, than they would 
have if it were in their own hands. This use of deposits so 
swells the amount deposited in bank, as to place a much larger 
sum at the disposal of the bank for its own profit. Tims the 
bank could lend a certain proportion of its deposits, and receive 
interest therefor, at the same time that the owners of the depo- 
sits were making the utmost use of their money which could be 
made under any circumstances. 

This mode of payment offered to its customers by the Bank 
of England was the same which had been enjoyed, to some ex- 
tent, on the books of the private bankers ; but the superior 
credit of the bank, and the far larger number of its depositors, 
gave much greater efiect to this rapid mode of payment than 
could take place between the same parties as depositors with 
diflFerent private bankers. This advantage gradually attracted 
to the bank a large portion of the money of the country, which 
became available for a mode of payment, the most effective of 
which it was susceptible. The money deposited was thus made 
to perform the same duty, in proportion to the amount, as that 
which was shut up in the Banks of Amsterdam and Hamburg, 
with this advantage to the depositor, that he could withdraw 
his deposit at pleasure. The bank deposits became the most 
popular and safe mode of effecting the larger payments of com- 
merce, foreign and domestic, and they absorbed the amount 
needful for that purpose. It is obvious that, with the compara- 
tively rapid circulation of deposits, a much less amount would be 
required for these payments, than if coins had to be employed 
for that purpose. The deposit system of payments was one not 


only of great efficiency, but of great economy ; it saved proba- 
bly three-fourths of the money ^vhich would be required to make 
the same amount of payments by the actual counting and 
delivery of coins ; but, in fact, payments could be made ten 
times faster by deposits than by coins. The money thus econo- 
mized was lent by the bank to its customers, who would be, in a 
large degree, the very same who made the deposits. The depo- 
sitors had, then, not only more eifective use of their money as a 
deposit, but their united deposits placed at the disposal of the 
bank a large sum to be lent to them for their accommodation. 

Another mode of business open to the Bank of England was 
the issue of bank-notes, or other securities of a similar nature, 
for which they might find a demand. Bank-notes, properly 
speaking, were unknown in England at the origin of the bank. 
The notes of the goldsmiths were regarded in no other light than 
that of promissory notes of individuals. They never reached 
that full currency as money to Avhich bank-notes have since 
attained. The notes of the Bank of England were for a long 
time, by writers and in public documents, called promissory 
notes payable on demand, to distinguish them from the usual 
business notes drawn upon time. As the Bank of England Avas 
the first to issue bank-notes, now technically so called, in that 
country, it may assist our perceptions of the true nature and 
functions of banks, if we regard them from the point of view 
taken by the bank, when it first issued a form of security which 
has since occupied so much of the time and attention of the 
commercial and political world, and about which opinions have 
been so divided. 

The bank was authorized by its charter to deal in bills of ex- 
change, and as bills were much used in England in the domestic, 
as well as in the foreign, trade, they were of course early ofiered 
to the bank. It would be apparent to the bank, that the amount 
of foreign and domestic bills was far greater than the money 
and bullion in the country. The bills of exchange, therefore, 
offered to the bank a vastly larger opening for business than 
any possible operations in money or bullion. It became an in- 
teresting point to decide in Avhat way the bank could deal in 


bills of exchange, foreign and domestic, and it may be added 
promissory notes, with advantage to itself and the public. The 
subject, as thus presented to them, was much simpler than it is 
regarded now, when it involves so many complications. 

Bills of exchange and promissory notes had then, as now, 
some time to run before maturity, say an average of three 
months. During that time, these securities were of no use to 
the holders, unless they could transfer them in payment of debts, 
or in the purchase of property. This advantage would be rare, 
for the amounts would be inconvenient, and the exact standing 
of the parties not always known. But as these securities, among 
men of business, make a very large item of their posses- 
sions, they would naturally be used in obtaining loans ; and 
so far as the bank had money to lend, it would not only look 
with favor upon such securities, but would incline to carry its 
dealings in them far beyond the amount of any money it could 
command. The obvious suggestion would be, to give the holders 
of these securities of such inconvenient amounts, and limited 
credit, the notes, in small amounts or denominations, of the bank 
itself, payable at the same time. The bank would deem it 
quite safe to exchange its own promissory notes for approved 
notes or acceptances of individuals, both payable on the same 
day ; so that, on these transactions, the amount payable by the 
bank each day would be the same which was payable to the bank. 
For this exchange of notes, or securities, the bank would of 
course exact a compensation in the shape of commission, dis- 
count or interest. The advantage to the customer of the bank 
would be obvious ; he Avould receive, for instance, in place of a 
bill of exchange or promissory note for X180, nine notes of the 
bank for <£20, each of which would be gladly received by all 
persons in the payment of debts or goods. The inducements to 
such a business would be quite sufficient to secure its continu- 
ance on both sides. 

But the Bank of England, on the suggestion of certain bold 
and ingenious financiers of that day, decided to go a long step 
farther, and so to increase the inducements on its side as to 
insure a large business and great favor with the people. It was 


urged upon the bank, that it might not only issue its notes in 
small denominations, in exchange for individual commercial paper 
having some time to run, but that such notes might safely be 
made payable to the holders, or whoever might present them, on 
demand. It was alleged, in justification of this bold idea, that 
these small notes issued by the bank would pass into circulation 
like money, and thus be dispersed over the kingdom ; that they 
would furnish an immense facility in business, and become 
almost indispensable in the transactions of domestic trade ; that 
they could not, and would not, tlierefore, be returned suddenly 
and in large quantities upon the bank. It was further urged that 
it would be a very great convenience to the holders of these, if 
an occasional want of money or coins could be supplied at once 
by presentation of these notes at the bank ; that it would bo 
easy for the bank to supply these occasional wants, and that the 
doing so would give the notes a currency like money, and a favor 
with the public far beyond any previous anticipations. 

Upon such considerations, the bank decided to issue notes 
payable to bearer on demand, in exchange for individual 
paper j)ayable at a future day. The bank thus undertook to 
jjcrform an impossibility, in the hope that it Avould not be called 
upon to redeem the promise, or make the attempt. What the 
bank could do was to give its own notes, of convenient denomi- 
nations for circulation, in exchange for individual paper, and 
payable at the same time ; and in doing this alone, the bank 
could have rendered a great service to the public with small risk. 
The bank had not the money, and could not, therefore, purchase 
the paper offered; the notes offered by the bank were not money, 
Aough a much better substitute for money than the notes of indi- 
viduals, which could only circulate to a very limited extent as a 
medium of payment. The bank issued notes payable to bearer, 
without endorsement, and this certain!}' added to tlie facility 
and convenience of their passing rapidly from hand to liand as 
a currency. It departed from sound i)rinciplcs, when it made 
these notes payable on demand in gold or silver ; for it must be 
contrary to sound principles, to undertake to do what cannot be 
done. The bank-notes were nothing more, and should not have 


been held up to the public as anything more, than the mere pro- 
missory notes of the bank, convenient in form for circulation 
among all those who chose to take them, not as money, but as 
promises to pay money. The promise should have been only 
such as the bank could perform. Strictly speaking, the bank 
could oidy pay in coin when it received in coin. It could exact 
payment in coin for the note received of every individual only 
when the note matured, and not before. The accommodation 
between the bank and its customei's was mutual in this exchange 
of notes ; the bank received a profit, and the customer received 
the bank-notes a better medium of payment, one which would be 
received out of the bank, as well as in it, in payment of debts, 
or in the making of purchases. But it should never have been 
imagined for a moment, that by this process between the bank 
and its customers they manufactured money. If the notes 
issued by the bank had been payable in specie only upon the 
day when the paper taken by the bank was payable, then the 
bank would receive every day from the public as much as the 
public could demand from the bank. The bank-notes would, in 
this case, have served every legitimate purpose which such an 
instrument could serve. If all the business-paper of England 
had been thus exchanged for notes of the Bank of England, then 
all this business-paper could have been paid off and discharged 
by these bank-notes. This surely was an advantage in itself, 
and an economy of money very desirable to be achieved. Nothing 
more than this should ever have been expected of bank-notes. 

It is true that bank-notes might have been issued on the basis 
of specie alone; in that case, the specie should have been kept 
ready for their redemption, pound for pound. But when the 
notes of a bank are issued in exchange for the notes of indi- 
viduals, they should in strictness be payable in gold or silver 
only when the notes of the individual are so payable. The bank 
would then either receive its own notes back, or something that 
would pay them when presented. 

If we suppose the Bank of England to have received from its 
customers individual notes and acceptances to the amount of 
.£5,000,000, at the rate of six per cent, discount, and having an 


avr/age of two months to run, it would then have issued its own 
nf^tes to the amount of £4,950,000. The bank wouhl thus have 
furnished to the many debtors whose paper it held for .£5,000,000, 
a perfectly good paper currency, in which payment of this sum 
could be made. And these debtors would only have to purchase 
from the public this <£4,950,000 of bank-notes, and carry with 
them £50,000 m money, to pay off the whole indebtedness of 
.£5,000,000, find be freed from their liabilities. Surely, bank- 
notes m'ght be employed in this way, Avithout calling them 
money ; and every needful security might be required of a bank 
against the abuse of this power of issuing bank-notes, without 
attempting to make them money. 

In the case supposed above, the bank, if its issues were pay- 
able on demand, would be under an obligation to pay £4,950,000 
in coin, on presentation of its notes. But the holders of these 
notes had not given coin for them, and the notes for which they 
were given would not be due for an average of two months. The 
debtors of the bank needed but one per cent, of the amount in 
money, and the public needed only that the bank-notes would 
pay all their debts, and make all their purchases. There is no 
conceivable use of making bank-notes payable on demand, but 
as a check on over-issues and abuses. The experience of a cen- 
tury and a half in Europe proves that it is no adequate check. 
Other checks and securities, far more safe and reliable, have 
been applied, and not nearly so burdensome, to banks. The 
Bank of England, in the first instance, really offered the security 
of the public debt ; and during its whole history it could ahvays 
have given, and could now give, that security for its whole cir- 
culation, if it were only compelled to pay its notes in specie, 
jjari passu, with the payment of the individual paper held by 
the bank. Every really useful function of a bank-note can be 
as fully performed by one payable in specie at two, three or four 
months, as if payable on demand. It is certainly, uj)on occasion, 
a convenience to be able to ask for and receive sj)ecie on demand ; 
but it is a convenience the public can have no right to expect, 
as it involves an impossibility. It would be a great convenience 
for merchants, if they could open their port-folios at any time, 


take out notes and acceptances, and make demand for the 
amount in specie ; but it is an advantage impossible to be 
accorded. It is an advantage, in the case of the bank, only 
maintained for the public at a cost ten times greater than it is 
worth. This advantage, which the Bank of England only offered, 
in the first instance, to attract business, and to give currency to 
their notes, has been paid for since, by the people of England, 
in a series of pressures, revulsions and currency fluctuations, 
which have inflicted injuries and losses upon the government 
and people of Great Britain, in comparison with which the pre- 
sent national debt may be insignificant. It may be said, how- 
ever, that this system has advantages which go far to counter- 
balance these evils. But what should be thought of a system 
of currency which fluctuates between such a height of advantage 
on the one hand, and such a depth of evil on the other ? 

The suggestion was discussed very early in the history of the 
Bank of England, that there was a certain proportion which 
ought to be preserved between the liabilities on demand and the 
amount of coin which ought to be kept to meet them ; and one- 
third was often named as a safe proportion. This has often 
been repeated and relied upon, down to the present time. As a 
principle, it never deserved a moment's consideration ; it could 
never be anything but a conjecture, and all the history of bank- 
ing proves it to be utterly fallacious in the hour of trial. The 
same principle should be applied to the engagements of banks 
which is applied to the engagements of merchants — what they 
engage to do, they should be held strictly to perform. If they 
undertake to pay all their notes on demand in specie, there 
should be no guessing and no conjecture in the matter, but full 
and complete preparation to meet the engagement. Dollar for 
dollar should be the rule, or means to obtain the dollars before 
they could be demanded. 

The error committed by the Bank of England was not in 
agreeing to pay their notes in specie, but in issuing notes pay- 
able on demand ; in discounting paper having two, three, four 
or more months to run, and giving their own notes payable in- 
stanter. No financial contrivance can make this possible, and 


no ingenuity ever gave a sound reason for it. We may imagine 
that all the commercial paper of Great Britain Avas discounted 
at the Bank of England, and the proceeds issued in the shape 
of bank-notes ; "we may imagine that these are received by the 
public as a convenience of the highest order, being the change 
given by the bank for the very inconvenient paper issued by in- 
dividuals ; but we cannot imagine that the bank could pay on 
demand, in gold or silver coin, a sum equal to the whole amount 
of the commercial paper issued by individuals. It would require 
ten times as much coin to support those bank-notes as it would 
to pay oif the commercial paper in exchange for which they 
were issued. For a million in coin would, in the course of three 
months, pay off ten millions as it matured from day to day ; but 
it would require ten millions in coin to discharge ten millions in 
bank-notes payable on demand. 

We are far from contending that the Bank of England should 
have issued notes not payable at all in gold or silver. The bank 
should have promised only what it could with certainty perform; 
that is, to pay the bank-notes at the maturity of the notes for 
which they were given. There may have been then, and may 
be yet, serious objections in practice to any mode of issuing bank 
paper in the rather unusual form of post-notes, maturing on an 
average of about three months. That, however, is the true 
theory of bank-notes issued in exchange for the commercial 
paper of individuals ; if a proper effort had been made, practice 
might long since have formed a sound and available system on 
this safe basis. 

It would be very safe to aver that, upon the system of post- 
notes issued to meet the matui'ing of the notes discounted by the 
bank, the Bank of England would never have suspended pay- 
ments of specie ; and, what is of far greater consequence, the 
bank would not haVe been obliged to regulate its issues accord- 
ing to the fluctuating movements of specie ; movements which 
might have their origin in India, or China, or America, and by 
which the whole interior or domestic business of the country 
would be ruinously affected, though without any necessary or 
legitimate connection. 


It should be borne in mind, that the great business of domestic 
and foreign trade is not governed, though it may be aflfected, 
by the fluctuations in the supply of the precious metals. The 
wants of men at home and abroad must be supplied, whether the 
precious metals are plentiful or scarce. We have shown that the 
domestic, as well as the foreign, trade is mainly an exchange of 
commodities ; and that the only use made of gold and silver is in 
the payment of balances, and in the small dealings of the retail 
trade. It is a false and unsafe principle to assume that promis- 
sory notes of banks or individuals must fluctuate in supply as the 
precious metals fluctuate in quantity. The business, that is, the 
exchange of its commodities, in no civilized country is accom- 
plished by coin or bullion, and in the present state of productive 
industry it cannot be so done. The great transactions in com- 
modities by which they are distributed in every country, and 
between difl'erent countries, and thus forwarded for consumption 
to the retail venders, are carried on, in the first instance, by 
bills of exchange and promissory notes, the amounts of which 
are stated in money of account, as were the prices for which the 
commodities were sold. This business proceeds ordinarily Avith- 
out any reference to the supply of the precious metals. The 
individual paper issued in these transactions being exchanged 
for bank-notes, may be thus paid without any use of coins or 
money, except the balances and the discount paid the bank. The 
bank-notes should not, then, fluctuate with the supply of the 
precious metals, but with the business in which they are issued.' 
They are nothing more than a substitute, by the bank, of its 
own promissory notes for those of individuals, by which the latter 
arc enabled to pay their debts among themselves. If a man of 
business, who had issued his notes and acceptances for .£10,000, 
found they had been discounted in the Bank of England, and 
that XK900 of the notes of the bank had been issued in exchange, 
he could find no better nor safer medium in which to pay his 
debt to the bank, than these bank-notes, so far as they would 
reach. He would, therefore, give any commodities he had pur- 

• Ante, pp. 163-4. 


chased by this issue of his own paper for <£10,000, to procure 
the bank-notes with which to pay his debts ; for the bank-notes 
are, for his purpose, of equal avail and far greater convenience 
than coin. If he is a hokler of the notes of others for £10,000, 
he may have them discounted, and thus procure the notes to ex- 
tinguish his indebtedness ; the bank always keeping a sufficient 
claim on its debtors to redeem all its notes. It is a process by 
which individuals change their own notes into bank-notes, and 
with them pay their debts ; in other words, a process by which 
men apply the paper which others owe to them to pay the paper 
upon which they are indebted to others. In any business com- 
munity, the parties who issue their own notes largely are the 
same who receive notes largely from others : thus, when this in- 
dividual paper is converted into bank-notes, it furnishes a con- 
venient medium for the discharge of these mutual debts ; evex*y 
one being willing to receive, in payment of debts due to him, 
that which others will take in payment of his debts. 

We have already, in the chapter on bank-notes, remarked at 
some length on their peculiar functions or applications ; our 
object is now only to recall some of these, and to show how bank- 
notes become the safest medium for paying the promissory notes 
or acceptances of individuals. A. B. is the creditor of C. D. for 
£1000, and holds his promissory note, at four months, for that 
sum : A. B. curries it to the Bank of England, and receives 
there for it ,£980 in bank-notes. The bank becomes thus the 
creditor of C. D. for £1000, and it becomes thus possible for C. 
D. to pay his debt of £1000 in bank-notes, less the discount. 
The bank is equally Avilling and ready to receive its own notes 
in payment, from every one of whom it is a creditor. It has 
thus issued a common currenby, which all its debtors may take, 
and return in payment of the debts they owe to the bank. The 
bank-notes are good, not because the bank has undertaken the 
impossible task of paying them in specie on demand, but because 
there is an effective demand for every note issued by the bank, 
to pay debts due to the bank, and which must be paid at the 
risk of ruin. 

The notes issued by the bank in the i)urchase of bullion, and 


on tlie deposit of coin, rest immediately on that basis of bullion 
and coin : those issued in exchanfre for commercial paper rest 
immediately on that basis. Supposing the notes resting on these 
different bases to have been distinguishable, the former would 
return to the bank only when the convenience of the public dic- 
tated, or when there was a demand for the bullion or coin for 
which they were given ; the latter would return by necessity, 
and upon a different principle. 

When the bank gave its notes in exchange for commercial 
securities, it held the person liable, on these securities, for an 
amount, equal to the discount, greater than its notes emitted. 
It looked, of course, narrowly at the ability of these parties to 
meet their engagements at maturity. By the emission of its 
bills, the bank furnished to the public the very medium of pay- 
ment which would pay off and finally discharge the commercial 
paper. According to the course of commerce, the party who 
purchases merchandise gives his note or bill, payable at a sub- 
sequent day, and by consequence such purchaser has at his com- 
mand merchandise which he estimates at as much and more than 
the amount of his note or bill. He has the very commodities for 
which he gave the commercial security taken by the bank in ex- 
change for its notes ; these commodities, in his estimation as a 
merchant or dealer, are, on being sold, sufficient to command a 
value in money or bank-notes equal to his own liability. He 
can redeem the notes of the bank issued for his paper, by sale 
of the same goods which originated his paper. The merchant 
depends on sales of his goods for means to pay the debts he con- 
tracted in their purchase ; and the value of commercial securi- 
ties depends mainly on the certainty and facility with which 
merchants can convert their goods into the means of paying 
their liabilities. The bank furnished a facility for such payment 
which did not before exist ; and the goods held by its debtors 
would be freely offered for its notes, they being as available as 
money to extinguish indebtedness. The public, by this issue, 
were furnished with a convenient currency, the real value of 
which would be fixed by the demand of the debtors of the bank. 
These could neither doubt nor temporize; they must be prepared, 


on the (lay of payment, witli oitlier the money or bank-notes. 
The demand for bank-notes would be urgent and imperious ; the 
alternative would be, the notes, or money, or bankruptcy. This 
demand, as already observed, would more than equal the amount 
of the notes in circulation, so that every solvent debtor of the 
bank would be an agent to give value to its notes, to withdraw 
them from circulation by offering for them as much as he would 
for a corresponding amount of gold or silver. There could be 
no depreciation of the bank issues whilst the external demand 
equalled the amount issued. If the bank discounted, in a week, 
a million sterling of commercial securities, all running oflf in four 
months, at the rate of six per cent, per annum, and paid out 
£990,000 in its own notes, the debtors of the million would, 
within the four months, be compelled to prepare for payment of 
that amount as it matured ; and the holders of the notes would 
soon perceive the operation of the necessity to which these 
debtors had subjected themselves. The bank-notes would, accord- 
ingly, be held at the same value as coin, because they would pay 
the same amount of debt. This result would be more perfectly 
produced by the working of the bank, after it had been long in 
operation, when the demand for its notes would bo increased by 
the enlarged amounts falling dne, and by its widening circula- 
tion, which would carry many notes beyond the reach of the 
debtor, and thus force him to pay in money some portion of his 

A merchant may purchase, or not, as he deems most for his 
interest ; he may select his own time for dealing ; there is no 
actual necessity in this part of his business. But having once 
made his purchase, and given his paper, a necessity from which 
there can bo no escape, nor evasion, is laid upon him to meet 
his payment. The competition, therefore, among the debtors of, 
the bank, to secure its notes or money, would equal, if not sur- 
pass, any other competition in trade. It was this incessant de- 
mand, pressed by the very merchants who held goods selected 
with a view to the wants of the public, which gave to bank-notes 
the value and efficacy of money. Doubtless, the promise of the 
bank to pay its notes on demand had weight with some ; very 


few, however, received the notes for the purpose of demanding 
coin, or because coin could be demanded ; they received them 
because they could be employed with the same effect as money. 
They were more abundant, convenient and safe ; they answered 
the same purpose, and were therefore preferred. The immediate 
question with them was, will these notes be received in payment 
from us, and not as to the ability or willingness of the bank to 
redeem them. It was nothing to the receiver of the notes what 
might be the actual condition of the bank, so that the notes 
would pay like money. Men received money only to pay it 
away ; and when notes were offered as a substitute, they were 
received only when they could be paid like money. Individuals 
could not investigate the situation of the bank, but they could 
easily ascertain whether bank-notes would buy goods, or pay 

If the commercial paper discounted by the bank was payable 
in a short time, the demand for the notes would be proportion- 
ably active, as the debtors must be prepared at the day with 
notes or money. If it happened that a portion of the debtors 
failed to make good their engagements, and take up their paper, 
then a corresponding demand for the bank-notes ceased, and a 
surplus remained in the hands of the public, which must soon or 
late be presented for payment to the bank, upon which the loss 
in such cases fell. 

It is upon the operation of this active exterior demand for its 
notes, that the Bank of England has been so eminently success- 
ful during its whole existence of one hundred and fifty years, 
through many severe trials, and one long period in which it did 
not pay its notes on demand in specie. If the potency of this 
demand, in sustaining a circulation of bank-notes, were not seen 
at a glance, it is abundantly proved by the fact that the Bank 
of England, during this suspension of twenty-five years, main- 
tained a vast circulation not redeemable in specie. Its notes 
were, during this time, the chief medium of payment. It is well- 
known that every attempt to obtain such a circulation has failed, 
iinless founded upon a specie basis, or upon an exterior demand 
equal to the amount of the circulation. The most, arbitrary and 


despotic government has never succeeded in forcing a circula- 
tion, and in keeping it at par, in violation of these principles. 
But we shall revert to this subject again. 

We have thought proper to insist upon the efficacy of the de- 
mand for bank-notes created by indebtedness to the bank, in 
supporting a circulation, because many in England supposed 
that a large portion of the notes of the Bank of England had no 
other basis than a promise to redeem them on demand. The 
fact that the bank had promised to pay its notes on demand — 
a promise held out because it was not expected that performance 
■would be exacted — seemed to lead a portion of the public into 
the belief that in it consisted the Avhole security and value of the 
notes. This idea once entertained, continual apprehensions were 
felt by the timid and distrustful, even whilst the notes were daily 
fulfilling every function which could be required of them. The 
bank merely designed to offer a currency which would be adequate 
to all the ordinary payments, and which would command money 
whenever, from special circumstances, it might be needed. This 
it performed for more than a century, but unhappily not without 
creating the impression that its notes were all based, like the 
credits of Amsterdam, on an equivalent in specie. And as the 
holders of the English notes knew that such equivalent never 
existed in the bank, they supposed themselves called upon to 
believe that the bank, upon emergency, could procure the coin 
to redeem its issues. The bank could, it is true, at all periods 
of its history, have furnished to the holders of its notes as much 
coin as was really needed for the purposes of domestic or foreign 
trade. In one condition of commerce, the precious metals would 
flow into the bank ; in another, they would flow out. In all 
which, the bank was able and bound to accommodate its cus- 
tomers. The goodness of its notes issued for commercial paper 
would not depend upon these ebbs and flows of specie, but on tiie 
solvency of the debtors of the bank ; and this solvency would 
not depend on the amount of specie in the country, or in the 
bank, but on the means which the debtors held to comniand the 

There was a great difierence between furnishing to commerce 


all the coin really required for the payment of balances, and 
converting at once all the issues of the bank into gold or silver. 
So far as commerce is concerned, the latter was impossible, and 
■wholly unnecessary. Commerce could provide for its own neces- 
sities, and would have placed the bank in the proper condition 
for this purpose ; but a panic got up under the idea that bank- 
notes, to be good, must necessarily be payable on demand, it could 
neither resist nor allay. There has never been a time, in the 
history of the Bank of England, when, if a suflBcient amount of 
its notes had been presented to absorb all its specie, the balance 
in circulation would not have been perfectly safe and good. The 
question of depreciation is not touched here ; its important bear- 
ing on this subject will require more than a passing consideration. 
Whatever reasons of expediency or sound policy there may 
have been for requiring a bank to pay its notes in specie, it is 
no more right to say that the issues of the Bank of England 
were based upon coin, or a promise to pay in coin, than it was 
to say that the commercial securities discounted by that bank 
were founded upon their promise to pay coin. The real basis 
of the commercial paper was the commodities for which that 
paper was given ; and that basis was not changed or disturbed 
by the fact that the evidences of debt to which it had given rise 
were paid, settled, arranged or extinguished in any other way 
than by payment in coin. A very small part of these evidences 
would have been paid in coin, if they had not gone into the 
bank ; they must and would have been adjusted in some other 
way. The same goods which formed the basis of the commercial 
paper, became the basis of the bank-notes into which that paper 
was converted ; and there was no commercial necessity that the 
bank-notes should be paid in coin, any more than the commercial 
securities. There was an advantage in being able to procure 
coin when specially needed ; but a great mischief, in supposing 
that bank-notes could not be as good as gold, without being 
convertible instantly into gold ; that beef and mutton purchased 
with bank-notes were not as good as if purchased with silver ; 
and that debts paid with bank-notes were not as fully extin- 
guished as if discharged in gold or silver. 


We have said more than belongs to this place, of the nature 
of the circulation issued by the Bank of England ; the chief de- 
sign now being to point out the mode and facilities of payment 
afforded by such a circulation, compared with those before en- 
joyed. It cannot, however, be necessary to speak of the supe- 
rior conveniences and advantages of bank-notes as a medium of 
payment. The sturdiest objector to banks does not deny what 
is so manifest : his objection goes to the risk of loss, the danger 
of fraud, and the abuses of credit. In all cases, where banks 
of circulation have been established and conducted with even a 
moderate degree of prudence and skill, the notes have almost 
invariably been preferred to gold and silver. There is, in fact, 
no comparison between bank-notes kept at their proper value 
and coin as a medium of payment, in regard to convenience, 
safety and efficiency. We cannot now conceive of any medium 
of payment intended for general circulation, superior in these 
respects to bank-notes fully enjoying the public confidence. 
Greater permanence may yet be given to the paper, and addi- 
tional safeguards provided by the engraver against forgery ; but 
nothing superior in facility will ever probably come to the aid 
of commerce. 

Those, however, who have adequate ideas of the power of 
credit, know that bank-notes cannot exhibit the highest stage 
of its utility. Ever since the establishment of the Bank of 
England, there has been an increasing tendency in the payments 
of commerce to concentrate in London. Although the bank had 
furnished a medium at par with gold in London, and at par, if 
not worth more, through all the Island, yet the practice com- 
menced, and has continued until this day, of giving notes and 
bills payable in that city ; and of course merchants and dealers 
received and paid there a large proportion of their credits and 
debts. Those who had money on hand found it as available in 
London, and more safe than at home ; those who had to pay 
money could, with credit, more readily obtain it there tiian at 
home. But that great city became not only banker for the 
whole Island, and for the whole British dominions, but for all 
nations havinji; commerce there. An immense and hitherto un- 


paralleled concentration of payments took place in London. 
This was in compliance with a law of trade which continually 
presses upon merchants the necessity of increasing the efficiency, 
and economizing the means of payment. Great Britain has long 
been the country which has displayed the proudest triumphs of 
commercial integrity. All the world has been willing to confide 
money to the London bankers. It was too obvious to escape the 
attention of British traders out of that city, that the more the 
bank-notes and bank credits were concentrated, the more rapidly 
they could be circulated. A million in the city could perform 
as many payments in a day, as five millions scattered over the 
country. The system in the city tended, as we have seen, to 
resolve itself into the operation of paying by checks, which was 
safer and more rapid than with notes. There can be no ques- 
tion among those who have examined the subject, that the saving 
in the use of bank-notes, in time and in trouble, in making the pay- 
ments of London has been a vast assistance to British commerce. 
The accumulation of money there has greatly strengthened the 
bank, and has enabled it more freely to advance to the govern- 
ment, and to merchants, than it could otherwise have done. In 
regard to the payment of specie, the bank was more in the power 
of the private bankers and merchants in the metropolis ; but 
they were less dangerous than the same classes in the country. 
The bank had more command of its circulation than if it had 
been difi'used among the whole population ; and could, with 
greater facility, increase or diminish it as the demands of com- 
merce might require. This system was directly opposed to its 
interests, so far as it regarded a very great and wide circulation 
of its notes ; but, in many other respects, it promoted the best 
interests of the bank, of the public treasury, and the kingdom 
at large. It was found that, in one period of the year, the agri- 
cultural counties had a surplus in the hands of their bankers, 
which could be lent to the manufacturers, whose surplus, in the 
time of their harvest, could be lent to the aid of the farming in- 
terest ; and during all the year, these funds were at the com- 
mand of commerce, when otherwise unemployed. 


§ 3. The Bank of England's credits in account — Deposit of hank-notes — 
Funds in bank — Conversion of individual paper into bank-notes — The 
Bank grants credits for private paper, and receives the credits in all pay- 
ments — The credits torongly blended with deposits — Open credits payable 
on demand in specie, hazardous — Objections — Paying credits on demand 
abolishes time on bills of exchange and promissory notes — Mingling credit 
and money — Consequences — Real nature of the credits in account — Ex- 
pand with trade, diminish ivith it — Not money — Payment by bank credits 
not depeiulent on money — Not a question of convertibility. 

We liave seen how a bank, -with all its capital lent to the 
government, could do business upon its deposits, and by the 
issue of bank-notes ; it remains to consider how much larger a 
business than in either of these ways could be done with its 
credits. The business of granting credits to its customers, in 
the manner we are about to specify, did not probably occur to 
the Governor and Company of the Bank of England until after 
the bank had commenced business. It was rather a result of the 
two branches of business we have specified, than a forethought. 
There is no doubt they intended to employ their credit in every 
proper and available way, but they did not foresee the vast busi- 
ness which would be opened on their books for their own profit, 
and the advantage of the public, by the mere use of credits in 


The progress of their business soon revealed to the bank, that 
their customers not only needed a place of deposit and security 
for their coin and bullion, but also for their bank-notes. The 
deposits of coin, of which we have treated above separately for 
the sake of distinctness, were swelled by the deposit of large 
sums in bank-notes. It was soon perceived that a much larger 
amount of payment was effected by this movement of the depo- 
sits, than by the circulation of both bank-notes and coin. The 
chief demand for means to pay debts was not for bank-notes, or 
for coins, but for funds in bank ; and this demand was early 
responded to, on the part of the bank, by discounting business- 
paper, and giving the customer for whom the discount Avas made, 
not bank-notes or coin, but simply a credit in his account, which 
to that amount swelled his deposit. This credit rested on the 


same basis precisely as that upon ■\vhicli the bank-notes were 
issued, namely, individual business-paper. By this device the 
deposits of the bank were increased to a sum far beyond the 
aggregate of bank-notes and coin on deposit. The bank became, 
to some extent, a book-keeper for its customers ; it gave them a 
credit for their claims upon others, and charged them with the 
claims of others upon them. This was the case so far, at least, 
as the respective claims were discounted ; and the bank charged 
the same commission, or discount, for this credit in account as 
it did when it advanced or lent coins, or issued bank-notes. This 
became soon the most important department of the business of 
the bank, as Avell as the most profitable ; for the keeping these 
accounts was not so expensive to the bank as issuing its notes. 

These credits, as soon as given and entered in the deposit 
account of a customer, were worked in the same way, and to tho 
same effect, as deposits of coin and bank-notes. No distinction 
was made in the management, use or efficacy of a deposit, whe- 
ther it originated in one of these ways or another. The bank, 
for every amount of credit thus granted, held the corresponding 
amount of discounted paper. The return of the corresponding 
amount of credit was all the payment the bank asked for the 
business-paper it held. The credits were, therefore, as efficacious 
to discharge a debt in bank as coins or bank-notes. The bank 
held the individual notes against the credits it granted ; it sur- 
rendered them on the return of the same amount of credits, or 
the amount granted for each note or bill, with the amount of the 
discount in money. The bank liquefied for its customers the in- 
convenient and unemployed individual paper in their port-folios, 
and made it available by transfer, in any desired amount, for 
the payment of debts. A man with X10,000 of private paper, 
in twenty notes of various amounts, could do little or nothing 
with them in payment of his own liabilities; but with credits in 
deposit to the amount of X9900, he could effect any payment or 
purchase which he could have done with the money. 

This would have made a safe and extremely profitable busi- 
ness to the bank ; but it involved an onerous obligation, and a 
heavy risk. The credits were entered in the deposit accounts 


of tlie customers, which deposits -were made up of bank-notes, 
bullion and coin, and were, by the practice of the bank, payable 
on demand in coins. Thus the bank, whilst exchanging a credit 
on its books for business-paper having several months to run, 
became liable to pay these credits on demand in coin. This 
liability became one of great hazard to the bank ; for, whilst 
any run upon it for payment of notes would be gradual, because 
the notes were always widely circulated, the demand for depo- 
sits could be made instantly to a very large amount. The depo- 
sitors in the bank, from an early period of its existence, have 
always had it in their power to demand more money from the 
bank than it could pay, and of course to force it into suspen- 
sion. * 

This was not a necessary risk. The credit account should 
have been purely a credit account, only payable by the bank in 
money when the paper matured for which the credit was granted. 
The credit granted by the bank answered every needful purpose, 
without being payable on demand. The real legitimate operation, 
whether the bank issued its notes or granted credits, was, that the 
payment of the discounted paper by the drawers or acceptors 
should absorb the bank-notes or credits, and return thein, or 
something that would redeem them, to the bank. This routine 
of operation would end the transactions in each case. The bank, 
in receiving a promissory note at ninety days, received but a 
security for a credit granted by one individual to another ; for 
this it exchanged its own credit, which, to make the transaction 
correspond, should also, so far as it concerned payment in money 
or coins, have been at ninety days. Nothing more should have 
been attempted, where nothing more could be accomplished, 
than to make business or commercial paper available for the pur- 
pose of adjustment, payment of debts, or set-off of mutual claims. 
The bank could spread all a man's credits on its books, and 
make them available for the payment of his debts. It could 
render him no greater service ; it could neither convert his 
paper into money, nor lend him the amount in money, nor could 
it safely agree to pay on demand the credits granted on its 
books. The promissory notes and acceptances issued in the 


course of business or time should not have been, by any attempted 
device of banking, changed into notes or debts payable on de- 
mand ; it was too hazardous a measure ; there was no need for 
it. It is enough that a safe method had been found of changing 
these time securities into a shape in which they could be as fully 
available for their own payment and final discharge, as either 
gold or silver. 

The transfer of credits permitted to the depositors on their 
written order or check became, in the hands of the great mer- 
chants and dealers in commercial securities in London, one of 
the most eflfective modes of payment ever employed. It was 
freed from the forms and precautions which were practised at 
the continental banks ; and any conceivable amount of pay- 
ments could be made in a mornini; by the active movement of a 
comparatively small sum on the books of the bank. At the 
Bank of Amsterdam, he who received a transfer in bank for pay- 
ment, could not transfer or pay away the amount thus received 
until the next day — a precaution which must have checked the 
circulation of the deposits to a most injurious extent; but for 
this regulation, it may be presumed that a third of the actual 
deposits would have fully sufficed to make all the payments of 
Amsterdam. There was nothing in the constitution of the depo- 
sit banks which prevented them from offering the same facilities 
of transfer as the Bank of England ; but when they Avere esta- 
blished, the minds of merchants had not conceived such a con- 
venience, nor the efficacy of such a rapid circulation. The banks 
once in operation could not easily, without creating apprehen- 
sion, make any great change in their mode of conducting busi- 

It is difficult to imagine any scheme of adjusting the large 
payments of commerce superior to this. It embraces at once all 
the efficacy of set-off, and all the convenience of rapid circula- 
tion; the advantages of both these processes enter into and form 
the basis of this successful mode of payment. It is superior to 
the mere operation of set-off between individuals, because this 
requires a meeting to adjust accounts; it is superior to the mere 
circulation of bank-notes, because it is applicable to any frac- 


tionaiy sum ; it saves the risk of counterfeits, of theft, and of 
fire, and all the trouble and time of receiving, counting or lock- 
ing up notes ; and, more than all, it saves the necessity of a 
deposit of coin. The bank takes all the risk of forgery from its 
customer, who has only to avoid taking checks from those whose 
honesty he doubts. The merchant's check-book lies open before 
him, and his deposits can, by his own hand only, be changed 
in an instant into that which is as available as money. 

No error in practice or principle which can be laid to the 
charge of